End of B of A’s ‘Golden Parachute’ Plan May Set Trend
BankAmerica Corp.’s decision to collapse its “golden parachute” plan puts it in the vanguard of what executive compensation experts and shareholder rights activists hope will be a movement.
“I think they’re on the cutting edge,” said John A. Fischer, a principal in the Los Angeles office of Sibson & Co., a human resources consulting firm. “We’re going to see a lot more sensitivity about executive compensation.”
Elimination of the 3 1/2-year-old provision was quietly disclosed last week in the proxy of San Francisco-based BankAmerica, parent of Bank of America. According to the document, officers covered by the plan “voluntarily surrendered their rights to receive benefits under the plan, and the board terminated the plan.”
The golden parachute program, known more technically at BankAmerica as “change-in-control severance agreement plan,” was adopted in August, 1986, when the institution was drowning in red ink because of bad loans and was under siege by a hostile suitor, Los Angeles-based First Interstate Bancorp. It provided for payments equal to three times an officer’s annual cash compensation, plus the value of some stock, should the executive be fired or leave after a change of ownership. BankAmerica Chairman and Chief Executive A. W. Clausen’s cash compensation for 1989 was $1.7 million (including bonuses), and Vice Chairman Richard M. Rosenberg, who will succeed Clausen as the firm’s top executive next month, earned $1.2 million.
Such programs sprang to life during the 1980s takeover wave and were adopted by scores of U.S. companies. Shareholders criticized them as costly provisions that tended to insulate management and dissuade suitors; rank-and-file workers complained that management could walk away in comfort after a takeover, whereas they were left hanging out to dry.
Given BankAmerica’s dire straits at the time, observers said, the plan was viewed as necessary to lure talented executives who otherwise saw no incentive in joining the troubled firm.
Since then, however, BankAmerica has staged an awesome turnaround by trimming staff and costs and bolstering its California retail banking operations. For 1989, it reported a record profit of $1.1 billion. Management has stabilized. A spokesman said the golden parachutes were “no longer necessary.”
In recent years, “management insulation mechanisms” have increasingly come under fire, said Donald Crowley, a banking analyst in the San Francisco office of Keefe, Bruyette & Woods, a brokerage house. As a result, he added, shareholders “will view in a positive light” BankAmerica’s decision to halt the program.
A sampling of compensation experts said they did not know of other firms contemplating the elimination of golden parachutes, but all agreed that companies would be wise to consider it.
“Institutional investors are increasingly taking the position that they won’t support companies (with those plans),” said Sibson’s Fischer.
For example, Del Webb Corp., a Phoenix-based real estate company, is in the midst of a proxy fight with Webcott Holdings, a Los Angeles limited partnership formed by a dissident director that is seeking to overturn the firm’s executive golden parachutes and other anti-takeover provisions.
In a recent survey of 500 large companies, Towers Perrin Forster & Crosby, a New York consulting firm, found that 30% had change-in-control provisions. But as the takeover climate has cooled in recent months, the firm has seen a slowing in the rate of adoption of golden parachute plans, according to Michael J. Halloran, leader of the firm’s executive compensation practice.
One compensation consultant said she admires BankAmerica for taking the lead. “So often, such programs stack up . . . and no one takes a second look,” said Robin A. Ferracone, a vice president of Strategic Compensation Associates, a Los Angeles consulting firm.
