At least one executive of a bank that is receiving federal bailout money stands to earn tens of millions of dollars if his company rebounds, according to a report released yesterday by The Corporate Library.
At least one executive of a bank that is receiving federal bailout money stands to earn tens of millions of dollars if his company rebounds, according to a report released yesterday by The Corporate Library.
James Wells, chairman and chief executive of SunTrust Banks Inc. of Atlanta, received $1.25 million in salary, but no bonus, in fiscal 2008, according to the firm’s 2008 proxy filing with the Securities and Exchange Commission. The filing indicated, however, that the compensation committee granted him 25,075 shares of restricted stock, 25,075 shares of performance stock and 852,941 stock options at a Feb. 10 meeting.
The bank received $4.85 billion in federal bailout money through the Troubled Asset Relief Program and the stock awards were made just one day prior to federal regulations kicking in which would have limited the award, The Corporate Library found.
“If you had a signed employment agreement in existence to award stock or cash to an executive prior to Feb. 11, it was grandfathered,” said Paul Hodgson, senior research associate at The Corporate Library in Portland, Maine. “But [SunTrust] could not have known that at the time.”
The upside potential of the stock options awarded in February is huge, Mr. Hodgson said.
The highest exercise price for the stock options is $85.06. If the stock price returns to that level, the options would be worth more than $89 million, with restricted stock worth $12.8 million.
Or if the stock price rose to the lowest exercise price of $50.50, the options would be worth $45 million and the restricted stock worth $7.6 million.
The new compensation regulations that are part of the Obama administration’s stimulus package will have a significant impact on compensation for those firms receiving TARP funds.
The regulations temporarily prohibit incentive compensation, golden parachutes and bonuses except for restricted stock, which can’t vest while the firm still owes TARP money. The new rules also mandate that firms adopt clawback provisions.
“Obviously we will comply with everything going forward,” said SunTrust spokesman Barry Koling.
Historically, about 90% of executive compensation has come from stock and cash bonuses, Mr. Hodgson said.
“I think 2007 and 2008 will be the last opportunities for banks to reward their executives with a significant level of compensation,” he said. “In 2009 and going forward, it looks like pay will be cut back pretty significantly.”
The 20 largest TARP recipients have received nearly $264 billion in government aid to date.
