Bofa Dumps His Own Contract! Should Us's Dave Do

[usfliboi]

Posted on Wed, Mar. 03, 2004




Ken Lewis

R E L A T E D L I N K S
• Pay at FleetBoston
• 3/2/04: BofA CEO opts to scrap job contract




Salary experts applaud Lewis

BofA CEO wants pay based on performance

RICK ROTHACKER

Staff Writer


Bank of America Corp. Chairman and Chief Executive Ken Lewis' decision to work without a contract won praise Tuesday from corporate-governance experts who would like to see others follow his lead.

The Charlotte-based bank disclosed late Monday that Lewis terminated his employment agreement in December because he wanted his pay to be based solely on performance, not the requirements of a contract.

Corporate governance experts said most CEOs work under employment agreements that provide them with lucrative severance payments should they be fired. They said Lewis' decision to terminate his contract was unusual.

"This is quite unique, but it may be a harbinger of things to come," said Charles Peck, a compensation expert with the Conference Board, a nonprofit business organization. "There has been a lot of pressure on boards to pay compensation based on performance. I find this a heartening example."

Critics have long assailed contracts that hand executives big payouts even if their companies have performed poorly. Scrutiny increased as shareholders became disgusted with corporate scandals at Enron Corp., WorldCom Inc. and other companies.

By scrapping his contract, Lewis is more like a regular employee who can be fired at will, said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware.

"This eliminates the idea of locked-in security," Elson said. "It gives the (Bank of America) board more freedom and accountability."

Whether Lewis will lose any money without a contract, however, is unclear. His company had a strong year, and his pay will be based on that performance, said Dick Bove, analyst with Hoefer & Arnett.

"It sends a nice message," said Bove, who does not own Bank of America stock or do other business with the company. "But it's a way of deflecting criticism of what he will be paid. He can say, `Look, I'm paid on performance. The board didn't give me any gimmies.' "

The move also comes at a stage of Lewis' career when he is not expected to leave anytime soon, Bove said. After its FleetBoston Financial Corp. deal, Bank of America likely becomes too big to be acquired, meaning Lewis probably won't be booted because of a takeover by another bank.

In 2002, Lewis, 56, earned more than $18 million in salary, bonus and restricted stock awards. He also made more than $17 million in 2003 by exercising stock options. The company will disclose his 2003 salary in a proxy filing later this year.

Under his employee agreement, which was set to expire in September, Lewis was guaranteed a salary of no less than $1.5 million and was eligible for a bonus, according to the bank's latest proxy filing. If he quit for "good reason" or was fired other than for "cause," he was eligible for a cash severance payment equal to his base salary and bonus.

Lewis' compensation was based on the bank's performance relative to its peers, including net income growth and operating earnings per share growth, according to the proxy filing.

No other Bank of America executives have terminated their employment contracts, spokeswoman Eloise Hale said Tuesday. Chief Financial Officer Jim Hance's employment agreement expires in September, according to the proxy. Asset management head Richard DeMartini's agreement ended in February 2003, but it has certain provisions that are triggered if he is terminated during the one-year period that follows.

In a 10-K filing Monday, the bank, which is under investigation for improper mutual fund trading, disclosed that it would pay DeMartini up to $4 million in incentives and other pay after he leaves the company in April. The bank said in October that he would retire as part of the Fleet merger and be replaced by a Fleet executive.

DeMartini was one of four Bank of America executives named in New York Attorney General Eliot Spitzer's complaint against a New Jersey hedge fund. Neither he nor Bank of America has been charged with wrongdoing.

Four Fleet executives named to top jobs in the combined company also have employment contracts with Bank of America. Chad Gifford, the Fleet CEO who is to be chairman of Bank of America, is not among them. The bank has no current plans to sign a contract with Gifford, said Hale, who declined to comment further.

Among Charlotte's big companies, Wachovia Chairman and CEO Ken Thompson has an employment contract that includes a severance provision. New Duke Energy Corp. Chairman and CEO Paul Anderson has an employment agreement that will pay him only in stock and stock options.


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Rick Rothacker: (704)358-5235; [email protected].

 

[usfliboi]

In fairness, this was more PR than anything. Lewis stands too gain much moreby doing this and was easy to do since BOA has steadly had high returns over the last few years. I posted this for one reason. I think it would be a great move on Daves part to show his resolve and commitment to this company . In fairness Im not asking him to take 0 money home. He should be compensated. But a step in this direction would be a great step!

 

[Reservation Agent]

Wow! That show a real commitment!

It reminds me of when Lee Iococca took $1 in salary for a year, to help his company, Chrysler turn it around....after bankrupcy...

 

[D M G]

Seigel would never do this because he would have to cut Usairways a check every pay day. He'd go broke very quickly.

 

[youngblood]

Whether Lewis stands to gain or lose anything in this situation is a mute point. I commend him for making such a bold move. He has stepped forward and set an example. It would behoove corporate America to take notice and learn from such an example. Although BofA is doing well, if Lewis continues to keep himself in such a situation, it could ultimately turn out to be not as beneficial as the contract he was under. ( i.e. No one knows what tomorrow holds.)

Just as we are responsible for mistakes we make on the job or poor performance, management should be responsible as well. On the other hand, what about some recognition for the stacks of commendations I have from customers?

I am sick and tired of the cut throat - it's all about me - I'll cover my arse, you cover your own - corporate America. Not to mention the fact that most CEO's are overpaid, greedy, number crunchers. My life revolves around ethics, morality, and what's right vs. what's wrong. Sometimes I wonder if the majority of upper management for major corporations have ever known what it is like to look at your bank book and wonder how they'll pay for food until the next pay check. Don't get me wrong. I am a determined, intelligent, usually positive woman. I just don't like climbing the social/corporate ladder at the expense of others. I refuse to do so. In other words, if I ran a company, bet your ass I would be taking the same cuts (if not more) as those I was asking to sacrifice. Why? Because I have a conscience and a heart.

Just for the fun of it let's make a comparison. Scrooge vs. the upper managment of most corporations. Scrooge didn't want his employees to waste paper nor coal, yet he was living a most comfortable life in his flat. I wonder if the ghosts will ever visit our modern day Scrooges and what their reactions would be?

 

[usfliboi]

In yesterdays Clt observer, his move was subjected to critisism. The fact that BOA stock is surely to go up and it will make money, was tis a great pr move or was it geniune. I think it was mostly a pr move and now has even more of an opportunity to make money.

 

[PITbull]

If Siegel gives a damn about his fiduciary responsibilities, as mweiss would say, than he should do the same as Lewis.


But I can clearly make the assumption on character that Siegel not only could care less about employees, but he could care even less about stock holders unless he's part of the equation on all levels. Its not called capitilism, but rather corporate greed.

 

[ClueByFour]

But I can clearly make the assumption on character that Siegel not only could care less about employees, but he could care even less about stock holders unless he's part of the equation on all levels. Its not called capitilism, but rather corporate greed.

I can't speak to his character, but I can tell you why he won't do this: his lack of business acumen clearly shows that the company probably won't ever make any money on his watch, so he would go wanting if he did what the guy in the original poster's article did.