Exhibit 10.16

August 2007

PERFORMANCE-BASED

ANNUAL INCENTIVE COMPENSATION PLAN

Amendment #4 July 2009

Amendment #3 February 2009

Amendment #2 July 2008

Amendment #1 March 2008

PERFORMANCE-BASED

ANNUAL INCENTIVE COMPENSATION PLAN

INTRODUCTION

Pacific Capital Bancorp (the “Company”) is willing to provide annual cash incentive award opportunities for eligible employees, through the use of a Performance-Based Annual Incentive Compensation Plan (the “Plan”). The annual incentive awards will provide a payment based upon attainment of specified goals and objectives. The objective is to align the interests of these employees with the interests of the Company in obtaining superior financial results.

The Company believes in pay for performance and desires to implement a performance-based culture. The Company is committed to rewarding employees for the achievement of annual performance goals. This Plan is designed to reward and retain high performers and to drive the long-term financial success of the Company. The Plan should encourage teamwork and create an environment where executives are rewarded if the Company and his/her department achieve or exceed pre-determined annual performance criteria. The Plan is also designed to reward employees for achieving and exceeding individual performance criteria. It is prospective in design with the utilization of a defined payout formula that is based upon the achievement of a combination of pre-determined Company and department/individual performance criteria.

Each Plan Year the CEO shall submit to the Compensation Committee of the Board of Directors (“Committee”) a list of eligible employees (or employee groups) for participation in the Plan for the upcoming Plan Year. In addition to a listing of the eligible employees, the CEO shall also provide the Committee with a summary of the annual incentive award tiers, the incentive award opportunities for each tier, the weighting of Company versus department/individual performance goals, and a summary of possible payouts. Each Plan participant shall be notified of eligibility for participation in the Plan.

The Plan has been limited to a select group of officers of the Company as defined under the Plan Design Chart set forth in Section 4. In addition, at the sole and absolute discretion of the CEO, annual incentive payments may be made under the Plan to other exempt employees who have demonstrated exemplary performance but have not been designated eligible employees under the Plan. Such incentive payment amounts will be determined in accordance with the Plan Design Chart set forth in Section 4. In the case of an employee who has been granted eligibility to participate in the Plan but does not maintain a job title that qualifies for an incentive payment under Plan Design Chart, the CEO may award a discretionary incentive payment to such individual under the Plan, subject to the approval of the Compensation Committee.

Eligibility requirements include:

The Plan and performance period operates on a calendar year basis (January 1^st to December 31^st).

The Plan design incorporates a tiered approach with annual incentive awards that are linked to the achievement of pre-defined performance goals. The incentive ranges (as a percent of salary) are designed to provide market competitive payouts for the achievement of threshold, target and maximum performance goals. The table below provides the basic Plan design to be used until the Plan is amended, and the Plan will be reviewed annually to ensure alignment with corporate objectives. The basic Plan design must be approved by both the Compensation Committee and the Board of Directors on an annual basis.

Threshold, target, and maximum award opportunity levels, expressed as a percent of salary, have been set for each eligible employee. The actual payouts will be calculated using a ratable approach, where payouts are calculated as a proportion of threshold, target and maximum performance levels. An example calculation is provided in Section 7.

The Plan will provide annual incentive awards to Plan participants based on overall Company and Department and/or Individual performance objectives. The performance objectives are determined by using the Company’s performance history, peer data, market data, and management’s judgment of what reasonable levels can be reached based on previous experience. At the beginning of each plan year, based on recommendations from the CEO and other Company management, the Compensation Committee shall determine and approve the performance objectives for the CEO, CFO and the three other

most highly compensated executives (the “Senior Executive Officers”). The performance objectives for the Senior Executive Officers may consist of one or more of the following: Revenue, Revenue Growth, Net Income, Net Income Growth, Total Assets, Growth in Total Assets, Deposits, Growth of Deposits, Loans, Loan Growth, EPS, EPS Growth, Efficiency Ratio Improvement, Charge Offs, Non-Performing Loans to Total Loans [and others that may apply to the Senior Executive Officers].

The foregoing performance objectives may be applied to the Company, a division of the corporation or subsidiary of the corporation. The Compensation Committee will submit the approved plan design to the Board of Directors for approval. The specific performance criteria for participants that are not Senior Executive Officers will be determined by management and communicated via a goal setting worksheet. These worksheets will clearly define the performance objectives at threshold, target, and maximum levels and will define the potential award opportunity for the Plan participants.

The actual award payouts will be calculated using a ratable approach, where award payouts are calculated as a proportion of threshold, target and maximum award opportunities. If actual performance falls between a performance level, the payout will also fall between the pre-defined performance level on a pro-rated basis.

An example of how a payout amount is determined is provided in the example below.

Notwithstanding the foregoing, no incentive payment shall be made to a Covered Employee unless prior to such payment, the Compensation Committee certifies that the performance goals that provide for the payment have been satisfied.

Incentive awards will be earned during each Plan Year/Performance Period. If the Company does not meet threshold performance levels, there will be no payouts for the Company’s performance objective portion to Plan participants. However, the Plan participants will still be eligible to receive payouts related to their department or individual performance objectives.

After all performance results are available at year-end, the award calculation for each Plan participant will be submitted to the CEO and the Compensation Committee for approval. In approving an award, the CEO and the Compensation Committee shall have the discretionary authority to consider all performance results including Company, department, and individual performance. Payouts will be based on the eligible salary of the Plan Participant. Eligible salary is defined as the actual amount of salary earned in the calendar year in which the award is based. Awards are then paid out as a special payment, less any applicable tax withholdings, within two and one half months following the fiscal year-end. The awards granted and payments made to Senior Executive Officers under this Plan are intended to qualify as performance-based compensation under Section 162(m).

Any employee that is prohibited from receiving bonus or incentive compensation under the Emergency Economic Stabilization Act of 2008, as amended (“EESA”), shall be required to forfeit such compensation paid to such employee if the bonus or incentive compensation is paid during the period that the Department of the Treasury holds a debt or equity position in the Company. In addition, certain other highly compensated employees of the Company (as determined under EESA), that are not prohibited from receiving bonus or incentive compensation under EESA, shall be required to forfeit any bonus or inventive compensation paid to such employee during the period that the Department of Treasury holds a debt or equity position in the Company, if the award or incentive compensation is based on statements or earnings, gains, or other criteria that are later proven to be materially inaccurate.

The Program Administrator is the Chief People Officer of the Company. The Program Administrator reviews all recommendations with the CEO for approval prior to submission to the Compensation Committee and has responsibility to ensure fair and consistent consideration of eligible Plan participants. The Program Administrator or the CEO may recommend modifications to the program design and review the effectiveness of the plan on an annual basis with the Compensation Committee.

The Board also has the sole ability to decide if an extraordinary occurrence totally outside of management’s influence, be it a windfall or a shortfall, has occurred during the current Plan Year, and whether the awards should be adjusted to reflect the effects of such events.

If a Plan participant is terminated by the Company, or voluntarily terminates his/her employment with the Company prior to payout, no incentive award will be paid. To encourage employees to remain employed by the Company, a participant must be an active employee of the Bank on the date the incentive is paid to receive an award. However, there are exceptions for terminations as a result of death, disability, or official retirement.

If a participant is disabled and placed on long-term disability, his/her bonus award for the Plan period shall be prorated so that no award will be earned during the period of long-term disability. In the event of death, the Company will pay to the participant’s estate the pro-rata portion of the award that had been earned by the participant. Employees who qualify for official retirement will receive payment for a pro-rata portion of the award that they would be eligible for prior to retirement.

The Company has developed the Plan on the basis of existing business, market and economic conditions, current services, and staff assignments. If substantial changes occur that affect these conditions, services, assignments, or forecasts, the Company may add to, amend, modify or discontinue any of the terms or conditions of the Plan at any time with approval from the Board of Directors. The Board of Directors may, at its sole discretion, terminate, change or amend any of the Plan as it deems appropriate to comply with applicable laws and regulations.

The Administrator shall have the authority to interpret, administer and decide participant claims with the approval of the CEO and the Compensation Committee.

IN WITNESS WHEREOF, the Company has signed this Plan document as of             , 20        .