Well, at least Bank of America's board did something right, sort of. CEO Kenneth Lewis, who bought Merrill Lynch a year ago even when he knew it would be terrible for Bank of America shareholders, is leaving. No surprise there. Here's what's unusual: Technically he gets no golden parachute. He has no employment contract with the bank. And, even more unusual, in 2002 Bank of America froze the "supplemental" pension that Lewis and other bigwigs get.

Lewis will still have an executive pension, but he hasn't accrued seniority benefits in it since then. The present pension policy at Bank of America is to have execs get more or less the same pension as everybody else -- a great idea.

This is not to say that Lewis will be in poverty. His pension will still be huge. The present value of the whole package grew by $854,256 last year alone. His total compensation for the last three years was $10 million, $24.8 million and $27.9 million, respectively. Sure, a big chunk of that was in stock options that are WAY underwater. (Strike prices were in the $50 and $40 ranges. The stock is now $17.) But under the bank's rules Lewis gets to hang onto his options even after he retires -- until they expire. That gives him up to 2014 or so to wait for the stock head back up.

Another good thing about Bank of America's exec pay is the relatively few perks that top dogs get. "We provide very few executive fringe benefits," the bank says. Of course, "very few" for corporate royalty still means tons to you and me. Last year Lewis got $14,000 in home-security and parking benefits, $220,000 of free personal travel on company jets and $18,000 in free financial and tax planning. But he can't head off to the golf course just yet. Dealing with the litigation over last year's decision to buy Merill Lynch will probably take years.

Posted by Jay Hancock at 8:29 AM | Permalink | Comments (0)
Categories: Executive Pay
        

The Wall Street Journal reports that the Federal Reserve is proposing to regulate bankers' pay, giving itself the option to intervene if compensation schemes give key employees the incentive to bet the franchise on cockamamie ventures.

The Fed's plan would, for the first time, inject government regulators deep into compensation decisions traditionally reserved for the banks' corporate boards and executives.

Under the proposal, the Fed could reject any compensation policies it believes encourage bank employees -- from chief executives, to traders, to loan officers -- to take too much risk. Bureaucrats wouldn't set the pay of individuals, but would review and, if necessary, amend each bank's salary and bonus policies to make sure they don't create harmful incentives.

Anybody who appreciates the many benefits of capitalism and free enterprise ought to be creeped out by what's going on. On the other hand, Wall Street virtually asked for this to happen. Don't blame the Fed. Blame the big New York bankers, who betrayed their shareholders and betrayed their system.

Posted by Jay Hancock at 10:20 AM | Permalink | Comments (1)
Categories: Executive Pay
        

One of the keys to solving the executive pay mess is to make CEOs hang onto their stake in the company for a long time -- even after they retire. That way they can't gin up the risk, loot the place while the getting's still good and then ride off into the sunset before things collapse. Check our yesterday's speech from Lloyd Blankfein, boss of Goldman Sachs.

As I mentioned earlier, an individual's performance should be evaluated over time so as to avoid excessive risk taking and allow for a "clawback" effect. To ensure this, all equity awards should be subject to future delivery and/or deferred exercise over at least a three-year period. And, senior executive officers should be required to retain the bulk of the equity they receive until they retire. In addition, equity delivery schedules should continue to apply after the individual has left the firm.

Posted by Jay Hancock at 8:30 AM | Permalink | Comments (2)
Categories: Executive Pay