Does anyone who hasn't cured cancer, starred in a YouTube video or can hit a home run out of Yankee Stadium deserve $125 million? It's debatable, but paying such a large amount of money to retiring Bank of America Corp. (BAC) Chief Executive Ken Lewis is simply wrong.
Lewis, whose bank received $45 billion in federal bailout money, is entitled to receive such a gargantuan sum under the terms of his employment agreement, according to Reuters. His severance package includes $53.2 million in retirement benefits, mostly from a program frozen years ago, and $72.8 million in accumulated stock and other compensation, consultant James F. Reda & Associates told the news service.
Government pay czar Kenneth Feinberg, who rose to prominence by overseeing the government payouts to families of the 9-11 terrorist attacks, has almost as herculean a task on his hands with determining whether pay packages awarded for the 25 highest paid employees that needed government help are justified. Though the knee-jerk reaction from most investors would be "no, the greedy bastards don't deserve the money," the answer is really not that simple. These compensation packages were issued as a result of contracts, which the government shouldn't be in the business of tearing up because it does not like them.
Still, the case of Charlotte-based Bank of America is different. Lewis has already been paid handsomely thanks to a board of directors that appears to have been derelict in its duties. Clearly, they did not act in the shareholders or the bank's best interests. Maybe Feinberg could argue that the contract is outrageous on its face. To a layman, that certainly seems to be the case.
As the AFL-CIO notes, Lewis was paid $10.8 million -- more than 400 times the average bank teller's salary -- when the bank reported a $2.4 billion fourth quarter loss on worse-than-expected trading and loan losses. "Since becoming CEO in April 2001, Lewis received $134 million in pay, bonuses, stock awards and pension accruals," the union said.Officials from the AFL-CIO and other activist investors have long called for Lewis's ouster, saying the board of directors should have reigned him in years ago. Lewis created the modern Bank of America through an acquisition spree that gobbled up everything from FleetBoston to Countrywide to Merrill Lynch. Earlier this year, Lewis conceded the Merrill acquisition -- which he said he was pressured to do by the government -- was a "mistake," though in the short term it has bolstered BofA's bottom line.
Lewis is not the first errant former CEO to receive an outrageous payout. Stanley O'Neal, who was blamed for running Merrill Lynch into the ground, received $161.5 million, and Citigroup Inc. (C) gave Charles Prince a payout of $39.5 million, Reuters said.
Lewis, Prince and O'Neal all had contracts as do most top Wall Street executives. If all we do is throw up our hands and say to Feinberg that he has to respect these legal documents as sacrosanct, then what's the point of having him around.