Vote Urges BofA Curb on Severance
In a vote echoing of investor anger over Enron Corp. and other corporate debacles, shareholders of Bank of America Corp. on Wednesday approved a resolution asking the company’s board to limit severance pay for executives.
The measure, sponsored by the Teamsters pension plan and opposed by BofA’s management, passed at the banking giant’s annual meeting by a 51% margin--unprecedented for such proposals at large companies, where shareholders typically accede to management’s wishes.
The resolution asks the bank’s directors to require a shareholder vote on any severance agreements worth more than twice an executive’s annual salary and bonus.
The measure is only a request that the company’s board could reject or modify. “It’s not a done deal,” said Shirley Norton, a BofA spokeswoman. “It will have to be considered by the compensation committee and then the board.”
Nonetheless, shareholder activists said the victory marks an important milestone in their campaign to send a strong message to corporate America about perceived abuses in corporate governance.
Unions, complaining that lofty bonuses for executives have continued even as companies have fallen on hard times, have made severance pay a major issue, sponsoring about 20 shareholder initiatives similar to BofA’s this year. The unions’ pension funds control billions of dollars in stock and thus are major shareholders of many companies.
Last year, the Investor Responsibility Research Center tracked 13 such severance pay measures, which won 32% of shareholder votes on average.
“We’ve been expecting the ‘yes’ votes to rise,” said Carol Bowie, head of corporate governance research at the center.
BofA long has been a target for activists who say its board is packed with cronies of management.
Former President David A. Coulter, who headed the old BankAmerica before it merged with NationsBank, received more than $30 million in salary, bonuses and stock--plus a $5-million annual pension for life--when he quit at age 51 shortly after the merger in 1998. A week earlier, BofA took a $372-million write-down for losses on an unsecured loan Coulter had engineered.
Last year, 41% of BofA shareholders voted for severance limits. Most observers said the biggest factor leading to this year’s majority vote was Enron, which left thousands of workers jobless with their retirement funds in worthless company stock while top managers sold millions in stock before the energy company collapsed.
“It’s hard to escape the specter of Enron this year,” said Patrick McGurn at Institutional Shareholder Services, an advisory firm that backed the BofA measure. He noted that about 47% of Citigroup Inc. and Sprint Corp. shareholders voted for similar severance measures recently.
McGurn also pointed to shareholder protests that caused a policy change this month at Mattel Inc., the toy maker that had sent off former Chief Executive Jill Barad with a $50-million severance package. Mattel pledged not to grant severance benefits that “significantly exceed” those contained in employment contracts.
Damon Silvers, associate general counsel at the AFL-CIO, said he was “very surprised--but obviously pleased” with the BofA vote. He said the bank’s board should feel free to fine-tune the measure if, as the company maintains, it will give directors too little flexibility to hire top executives in a competitive market.
BofA’s Norton said she didn’t have a timetable for board action.
Graef Crystal, a compensation expert known for criticizing excessive pay packages, said the BofA measure is “a noble effort to constrain the outrageous security packages going to incompetent buffoons.” But he said it’s flawed because it’s likely to encourage directors to award huge upfront bonuses or other perks to compensate for severance limits.
“This is one little rifle shot that may ricochet back at the guts of the people who fired it,” he said.
