Thursday, January 8, 2009

Pay for Nonperformance

Shareholders suffered, but bank executives cleaned up big time.

Posted By on Thu, Jan 8, 2009 at 4:00 AM

When it comes to compensation for corporate executives, the two phrases we've heard for years are "pay for performance" and "align executives' interests with those of shareholders." This was supposed to justify their salaries, stock options, and bonuses.

But a glance at compensation for the top dogs at Memphis financial institutions suggests otherwise. The banks made lots of bad loans that generated fees and revenue and profits for a while, until it all came crashing down in 2007-2008, leaving shareholders holding the bag. Several of these executives were on the job.

For their bad practices, some of the largest financial institutions in the country got a bailout. Among them were Regions Financial, First Horizon, and SunTrust, three regional banks with a big presence in Memphis.

The banks won't tell us what they're going to do with the bailout money. But we can see how they spent their money on executives in 2006 and 2007 by looking at their proxy statements, the most revealing document that public companies disclose. The 2009 proxy statements, which cover calendar year 2008, will be coming out in the next few months. If pay for performance and aligning executive compensation with shareholders means anything, then executives should be paid like teachers.

Here's an overview of their executive compensation and stock performance.

Regions is based in Birmingham. It acquired Morgan Keegan in 2000, Union Planters Bank in 2004, and AmSouth Bank in 2006. Regions got $3.5 billion in the U.S. Treasury bank bailout. The stock price of Regions ranged from $35 to $38 in 2006, from $38 to $21 in 2007, and from $21 to $8 in 2008.

Dowd Ritter, the CEO of Regions, received $7,713,138 in compensation in 2007 and $18,433,989 in 2006.

Douglas Edwards, former CEO of Morgan Keegan, received $2,621,275 in 2007 and $3,181,408 in 2006. His compensation included a $1,873,000 bonus in 2007, even though, the proxy delicately notes, Morgan Keegan "had also been impacted by issues related to mutual fund offerings and the subprime mortgage credit issues of 2007."

Three Morgan Keegan bond funds backed by subprimes lost 70 to 85 percent of their value in 2008 and are listed as the "worst-performing bond funds" over one year, three years, and five years in The Wall Street Journal 's year-end tabulation.

Like professional basketball players, bank executives get paid royally long after their useful life is over. Jackson Moore, former executive chairman of Regions and former CEO of Union Planters, retired at the end of 2007. He received $12,290,451 in 2007 and $29,190,349 in 2006, which includes severance pay of $4,993,987 paid to him in July 2008. W. Charles Mayer, former senior VP who came to Regions in the AmSouth deal, got $14,601,273 in 2007.

Bryan Jordan, former CFO who left Regions for First Horizon in April 2007, earned $2,148,547 in 2006.

SunTrust is based in Atlanta. It acquired Memphis-based National Bank of Commerce. SunTrust got $4.9 billion in the federal bailout. SunTrust's stock price ranged from $73 to $84 in 2006, from $84 to $59 in 2007, and from $59 to $30 in 2008.

James Wells III, CEO, received $3,428,954 in 2007 and $6,147,410 in 2006.

William R. Reed Jr., vice chairman, got $1,828,736 in 2007 and $2,265,288 in 2006. Mark Chancy, CFO, received $1,810,941 in 2007 and $1,556,851 in 2006.

First Horizon is based in Memphis and is by far the smallest of the three regionals. First Horizon got $866 million in the bailout. Its stock price ranged from $36 to $44 in 2006, from $44 to $22 in 2007, and from $22 to $10 in 2008.

Gerald Baker, former CEO, received $1,707,964 in 2007 and $1,296,468 in 2006. He retired in August 2008 and was replaced by Bryan Jordan as CEO. Jordan received $1,587,722 in 2007 when he was CFO.

Kenneth Glass, who resigned as CEO in January 2007, received $968,013 in 2007 and $3,068,354 in 2006.

On its website, First Horizon says, "We continue to be committed to pay for results." The company notes that "since 2004, actual total pay for the CEO and COO has been below the 25th percentile of the competitive market."

Correction: In a column in December about his federal court trial, I mistakenly referred to former Memphis City Council member Edmund Ford Sr. as Edmund Ford Jr.

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