By David Mildenberg, Ian Katz and Julianna Goldman
Oct. 16 (Bloomberg) -- Bank of America Corp. Chief Executive Officer Kenneth Lewis won’t receive a salary or bonus for 2009, a decision based on advice from U.S. government pay supervisor Kenneth Feinberg.
“Lewis felt that it was not in the best interest of Bank of America to get involved in a dispute with the pay master,” spokesman Robert Stickler said yesterday in an interview.
Lewis, 62, came under fire this year from regulators and investors for not disclosing losses and bonuses at Merrill Lynch & Co. before shareholders voted to approve the purchase of the world’s biggest broker in December. That sparked investigations by the Securities and Exchange Commission, Congress and attorneys general in New York, North Carolina and Ohio.
The CEO had a base salary of $1.5 million for the past three years and must return wages already received in 2009, Stickler said. He declined to comment on whether Feinberg is seeking to reduce Lewis’s approximately $125 million of retirement benefits accumulated in 40 years at the company.
“I thought, ‘Wow, this seems to be an extreme reaction,’” said Frederic Dickson, who manages $20 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. “The man has been under extreme duress the entire year and deserves at least his base salary. I was extremely surprised.”
The decision marks the first return of money at one of the seven companies whose compensation practices are being scrutinized by Feinberg, the Obama administration’s “special master” on executive pay.
“It’s unfortunate that we’ve come to this point,” said Michael Holland, who oversees more than $4 billion at Holland & Co. in New York. “I would expect this will be an extraordinary case, a unique set of ugly circumstances.”
Feinberg, 63, must rule by Oct. 30 on pay plans for top managers at firms that received U.S. bailouts, including Charlotte, North Carolina-based Bank of America and New York- based Citigroup Inc. and American International Group Inc. The companies are required to tell Feinberg how they plan to pay their 100 top-earning employees.
“Companies will need to convince Mr. Feinberg that they have struck the right balance to discourage excessive risk- taking and reward performance for their top executives,” Treasury spokesman Andrew Williams said. “We are not going to provide a running commentary on that process, but it’s clear that Mr. Feinberg has broad authority to make sure that compensation at those firms strikes an appropriate balance.”
Lewis received restricted stock and option awards of $7.4 million in 2008 based on his work in 2007, $15.7 million in 2007 and $16.7 million in 2006, in addition to his base salary. Some of those stock options are underwater, meaning the stock price is now lower than when the awards were issued.
Because performance didn’t meet the board of directors’ expectations, Lewis didn’t receive a year-end cash bonus, restricted stock or a stock-option award for his 2008 work, according to the company’s March 18 filing. Lewis’s 2009 bonus would have been determined in February 2010 by the board, based on past bank practice, Stickler said.
“Lewis is consenting to a return of earned pay under circumstances that would not seem to warrant what is essentially a clawback,” said Mark Poerio, a partner focusing on compensation at Paul, Hastings, Janofsky & Walker LLP in Washington.
“It’s punitive and it’s mean-spirited, and it’s an attitude that will send shivers through every person who does business with the government or is regulated by the government,” said Greg Donaldson, chairman of Donaldson Capital Management, an Evansville, Indiana, firm that manages more than $300 million.
Bank of America Chairman Walter Massey is leading a six- member search committee for a successor to Lewis, who is stepping down on Dec. 31. Massey, a retired college president, took on the chairman’s job in April after shareholders voted to split the chairman and CEO posts at the bank. The search committee is considering insiders including Brian Moynihan, who heads the bank’s branch network, and Chief Risk Officer Gregory Curl, plus outsiders, according to Stickler.
Lewis testified to Congress he considered canceling the Merrill deal in December as its fourth-quarter loss headed for $15.8 billion, then relented under pressure from Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben S. Bernanke. The U.S. provided $20 billion in fresh capital and a $118 billion backstop on loans and mortgage-based securities.
Shareholders stripped Lewis of his chairman’s title in April, and regulators directed the bank in May to overhaul its board and risk management.
Lewis shuffled his senior executives in August, hiring former Citigroup Inc. Chief Financial Officer Sallie Krawcheck to run wealth management and shifting former investment bank head Moynihan to consumer banking. The bank is scheduled to report third-quarter results today.