8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): March 28, 2007

SHORE BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

Maryland	0-22345	52-1974638
(State or other jurisdiction of	(Commission file number)	(IRS Employer
incorporation or organization)		Identification No.)

18 East Dover Street, Easton, Maryland 21601

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (410) 822-1400

N/A

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:

࿳Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

࿳Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

࿳Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

࿳Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 5.02. Departure of Directors or Principal Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

(e) Compensatory Plans.

On March 28, 2007, the Compensation Committee (the “Committee”) of the Board of Directors of Shore Bancshares, Inc. (the “Company”) approved and adopted the 2007 Management Incentive Plan (the “Plan”), a copy of which is filed herewith as Exhibit 10.1. The Plan contemplates annual awards of cash compensation to certain executive officers of the Company and its subsidiaries if the Company meets its net income goal for the Plan year and the executives meet their assigned performance targets for the Plan year. The target awards are expressed as a percentage of each participating executive’s year-end annual salary; thus, awards for Plan year 2007 will be based on the salaries paid in 2006. Target awards are weighted between the Company’s net income and individual executive performance, and each component is subject to an upward adjustment (up to 150%) when performance exceeds targeted expectations and to a downward adjustment (down to 0%) when performance falls below targeted expectations, all as described in the Plan. The Company’s annual net income target and the individual annual performance target for each participant will be approved by the Committee at or prior to the start of each Plan year after reviewing the recommendations of the Company’s President/CEO and the Chairman of the Committee.

Awards earned in a Plan year will be paid no later than March 15^th of the following year. If a participating executive dies, suffers a permanent disability, retires or an involuntary termination for a reason other than cause, the executive or his or her estate will be eligible to receive a pro rated award for the Plan year when all other awards are paid.

The Plan is administered by the Committee, and executives chosen to participate in the Plan will be recommended by the Company’s President/CEO and approved by the Committee. The Plan will continue unless and until discontinued by the Committee. The Committee may amend or terminate the Plan at any time by giving participants 30 days’ written notice. In the event of a Plan termination, participants will be eligible for awards for the Plan year to the extent earned, calculated as of the date of Plan termination and paid as soon as practicable after the end of the Plan year.

Each of the Company’s named executive officers (as defined in Item 402 of the Securities and Exchange Commission’s Regulation S-K) has been selected to participate in the Plan for 2007. For W. Moorhead Vermilye, President/CEO, the 2007 incentive award is 75% of annual salary, weighted 80%/20% between the Company net income target and individual performance, respectively. For Lloyd L. Beatty, COO, the 2007 incentive award is 40% of annual salary, weighted 80%/20% between the Company net income target and individual performance, respectively. For Susan E. Leaverton, CFO, the 2007 incentive award is 40% of annual salary, weighted 40%/60% between the Company net income target and individual performance, respectively. For William W. Duncan, Jr., President/CEO of The Talbot Bank of Eason, Maryland, the 2007 incentive award is 50% of annual salary, weighted 30%/70% between the Company net income target and individual performance, respectively.

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The following table provides information about the possible award payouts to the named executive officers for 2007:

GRANTS OF PLAN-BASED AWARDS

 

	Estimated Possible Payouts Under Non-Equity Incentive Plan Awards
Name	Threshold ($)	Target ($)	Maximum ($)
Mr. Vermilye	19,125	191,250	286,875
Mr. Beatty	8,600	86,000	129,000
Ms. Leaverton	11,000	55,000	82,500
Mr. Duncan	18,375	122,500	183,750

Item 9.01. Financial Statements and Exhibits.

(c) Exhibits:

Exhibit 10.1—Shore Bancshares, Inc. 2007 Management Incentive Plan (filed herewith).

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SHORE BANCSHARES, INC.
Dated: April 2, 2007	By:	/s/ W. Moorhead Vermilye
		W. Moorhead Vermilye
		President and CEO

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EXHIBIT INDEX

Exhibit 

Number Description

10.1 Shore Bancshares, Inc. 2007 Management Incentive Plan (filed herewith).

EX-10.1

Shore Bancshares, Inc.

2007 Management Incentive Plan

ARTICLE I

OBJECTIVE OF THE PLAN

The purpose of this 2007 Management Incentive Plan ("Plan") is to reward executives of Shore Bancshares, Inc. (hereafter, the "Company") for creating value for the Company by maximizing Company, Divisional and / or Individual performance goals.

ARTICLE II

PLAN ADMINISTRATION

The Compensation Committee of the Board shall administer the Plan and have final authority on all matters and or disputes pertaining to this Plan.

The Plan is an annual Plan and is effective January 1, 2007 and shall remain in effect until the Committee deems otherwise. A new Plan year shall commence on the first business day of the fiscal year.

ARTICLE III

PARTICIPANTS

Participation is limited to those executives recommended by the President & CEO and approved by the Committee each Plan year

ARTICLE IV

PERFORMANCE OBJECTIVES

Prior to or at the beginning of each fiscal year, the Committee shall establish:

(i) Plan performance objectives for the Company, subsidiary or business unit of the Company based on such criteria as may be recommended by the President & CEO, and

(ii) the award formula or matrix by which all incentive awards under this Plan shall be calculated for Committee review and approval.

The Chairman & CEO shall establish individual performance objectives for each Plan participant and evaluate each participant’s performance against those pre-established individual objectives.

ARTICLE V

AWARD CALCULATIONS

Each executive shall be assigned an incentive award target, calculated as a percentage of year-end base salary, which shall be awarded if the Company and the executive achieve targeted performance goals. Target awards shall be leveraged up when performance exceeds expectations, or down if performance is below expectations. Following are the target awards and weights by executive position.

Target awards shall be weighted between 1) Company Net Income and 2) Division / Individual Goals. Goals and weightings shall be established and measured by the Compensation Committee. Company and Division / Individual Goal weightings and Award Calculations follow:

Schedule A:Award Percentages and Performance Measure Weightings

Position/Title	Incentive Award Target	Company Net Income Weight (1)	+	Division/ Individual Performance Weight (2)
President & CEO, Shore Bancshares	75%	80%	+	20%
COO, Shore Bancshares	40%	80%	+	20%
CFO, Shore Bancshares	40%	40%	+	60%
President, Talbot Bank	50%	30%	+	70%
President, CNB	25%	30%	+	70%
President, Felton Bank	20%	30%	+	70%
Senior Lender, Talbot	35%	20%	+	80%
Senior Lender, CNB	20%	20%	+	80%
Secretary, Shore Bancshares	20%	20%	+	80%
CEO, Insurance Division	5%	20%	+	80%

Schedule B:Award Leverage Schedule:

Percent of Company Performance	Percent of Company Incentive Award	Percent of Division / Individual Goal Performance	Percent of Division / Individual Incentive Award
120%	150%	120% or (Exceeded All Goals)	150%
110%	120%	110% or (Met All and Exceeded Some Goals)	120%
100%	100%	100% or (Met Most Goals)	100%
90%	50%	90% or (Met Some Goals)	50%
Less than 90%	0%	Less than 90% or (Did Not Meet Goals)	0%

Award Calculation Formula:

The calculation example below assumes an executive has a base salary of $150,000 with a target award opportunity of 25% and goal weights of 60% on Company Net Income, and 40% on Division / Individual goals. In addition, the example assumes Net Income results are 110% of target performance and Division / Individual goals are met. Please refer to Schedule B above when determining appropriate leverage percentages.

(Base Salary) x ((Company Award x Leverage %) + (Division / Individual Award x Leverage %))

Example: ($150,000) x ((25% x 60%) + (25% x 40%)) =

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($150,000) x ((15%) + (10%)) =

($150,000) x ((15% x 1.20) + (10% x 1.00)) =

($150,000) x ((18%) + (10%)) =

($150,000) x (28%) = $42,000 Total Annual Incentive Award

ARTICLE VI

ADMINISTRATIVE MATTERS

The Committee reserves the right to withhold awards provided that the Committee gives written explanation to participants within a reasonable period of time following their decision to withhold.

Incentive awards shall be paid as soon as practicable following the end of the fiscal year, however in no event shall awards be paid later than March 15th of the subsequent fiscal year.

In the event of death, permanent disability, retirement or involuntary termination without cause, unpaid awards shall be calculated on a pro-rated basis by taking the number of full months, including the month in which the terminating event occurred, and dividing those months by twelve. Prorated awards will be payable at the same time that normal award distributions occur.

Except in the case of death, disability or retirement, a participant shall forfeit his right to receive any Plan award in the event of voluntary or involuntary termination for cause during the Plan year.

Interpolation shall be used to calculate incentive awards when Company and Division / Individual performance falls between levels detailed in Schedules B.

ARTICLE VII

NO ENTITLEMENT TO BONUS

Plan participants are entitled to a distribution under this Plan only upon the approval of the award by the Committee and no participant shall be entitled to an award under the Plan unless the award is subject to the attainment of performance objectives defined under the Plan.

ARTICLE VIII

TERMINATION OF PLAN

The Committee reserves the right to amend or terminate the Plan at any time within thirty days written notice to Plan participants. In the event of a Plan termination, participants shall continue to be eligible for incentive awards, if earned, for the current Plan year. Incentive awards shall be calculated as of the date of the Plan termination and payable as soon as practicable after the end of the Plan year.

ARTICLE IX

PARTICIPANT'S RIGHT OF ASSIGNABILITY

Participant awards shall not be subject to assignment, pledge or other disposition, nor shall such amounts be subject to garnishment, attachment, transfer by operation of law, or any legal process.

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Nothing contained in this Plan shall confer upon participants any right to continued employment, nor interfere with the right of the Company to terminate a participant’s employment from the Company. Participation in the Plan does not confer rights to participation in other company programs, including annual or long-term incentive plans, non-qualified retirement or deferred compensation plans or other perquisite programs.

ARTICLE X

GOVERNING LAW

The laws of the State of Maryland shall govern the validity, construction, performance and effect of the Plan.

IN WITNESS WHEREOF, the parties have executed this Plan on the date written below.

/s/ W. Moorhead Vermilye	March 28, 2007
President & CEO	Date
/s/ Christopher F. Spurry	March 28, 2007
Chairman, Compensation Committee	Date

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