Lost $5.1 Million in ’85 : Ailing Sun Savings Paid Top 3 Executives $835,000
Financially troubled Sun Savings & Loan Assn., its net worth below zero and reeling from $5.1 million in losses last year, paid its top three executives more than $835,000 in salary, bonuses, benefits and moving expenses in 1985, according to documents filed this week with federal regulators.
Sun President and Chief Executive John M. McEwan received the lion’s share of the executive compensation--$462,228.
Much of that compensation--about 64%--was in the form of one-time payments. Included were funds paid by Sun for McEwan’s relocation expenses from Cleveland last year, as well as for federal and state income taxes due because of those moving expenses and to cover a 10,000-share stock grant, McEwan said Friday.
John Shoemaker, president of Sun’s real estate development subsidiary, received $208,388 in compensation, and John C. Grosvenor, Sun’s general counsel and executive vice president, was paid $164,429 last year, according to Sun’s 10-K and annual report filing with the Federal Home Loan Bank Board.
Terms of Consent Order
The filing also details for the first time terms of Sun’s consent agreement with federal regulators, which clamps a tight lid on management’s operating ability and sets the stage for Sun to be bought outright by an outside company or taken over by a federally appointed receiver.
The agreement, entered into last month, “will have adverse effects” on Sun, its stockholders and customers, according to the filing.
Regulators have prohibited Sun from spending more than $100,000 to buy, sell or lease any goods, materials, equipment or supplies.
Additionally, Sun directors cannot receive any fees for serving on the board until Sun’s net worth--or the excess of assets over liabilities--climbs to the regulatory minimum of 3% of total assets.
When regulators ordered the consent agreement last month, they revealed that, under their calculations, Sun’s net worth was a negative $818,000.
Generous Contract
Sun management has disagreed with that calculation, contending that regulators have incorrectly demanded that Sun write off nearly $1.4 million in additional bad loans.
McEwan negotiated what appears to be a well remunerated contract when he quit his post as executive vice president and vice chairman of Central National Bank of Cleveland to become Sun’s chief executive in February, 1985.
At the time, Sun was very much in financial trouble at the time, and McEwan’s charge was to negotiate a desperately needed capital infusion.
Although he has failed to do that, he has steered Sun through a year of extraordinary, even bizarre events that included several lawsuits, the resignation of five directors, a federal grand jury probe of prior management, the firing of Sun’s outside auditors, a consent agreement with federal regulators and several near misses at securing additional capital.
For weathering those upheavals, McEwan was handsomely compensated:
He received a $25,000 bonus at the end of 1985.
Sun established a $238,500 severence trust fund for McEwan, which he will automatically receive should he be fired. That is equivalent to a “golden parachute” of one year’s base salary of $175,000 plus benefits.
McEwan was given a five-year, interest-free $200,000 loan. He said Friday that the loan was used as a “housing cost differential” between real estate prices in Ohio and California. Sun’s federal filing calls it a cost-of-living benefit.
Like other financial institutions, Sun has been unable to obtain directors’ and officers’ liability insurance. Nonetheless, Sun collateralized a $700,000 letter of credit for McEwan that would, if needed, “provide defense and indemnification” to him if he is sued in his capacity as president and chief executive.
McEwan was given a 10,000-share stock grant when he took the job. In addition, he has a 50,000-share option that he can exercise at $6 per share, far above Sun’s closing stock price Friday of 2 1/2, down 1/8.
McEwan received two loans totaling $535,000 to purchase and remodel a home in La Jolla and as a “bridge loan” until he sold his Cleveland home in August, 1985.
McEwan also received a 1968 Mercedes--valued at about $28,000, according to Sun sources--as part of his compensation.
Loans to Sun Officials
Other Sun officials also have outstanding loans from Sun. Grosvenor was loaned $287,100 for a “residence purchase” in October; director Allan Koljonen was loaned $200,000 in August to refinance a house; former senior lending officer Michael M. Lennon--who was laid off last month as part of a companywide cutback--was loaned $115,300 in August to refinance a house; senior vice president Donald R. Sully was loaned $100,000 to purchase a house in August, and senior vice president Loretta Cummings was loaned $120,000 to buy a home in March, 1983.
McEwan said his contract was justified “in terms of market competitiveness--particularly in a high-risk situation, and, in February, 1985, there certainly was a significant down-side risk moving here from Cleveland.”
He quipped that “the main thing I’m concerned with is that 64% is non-recurring. That means I didn’t get a raise (in 1986). I’ll admit I’m a tough negotiator. But they were seeking me, I wasn’t seeking them.”
Six weeks ago, Sun trimmed its 109-member staff by 13%, laying off 14 positions.
