(Repeats to widen distribution)
By Ross Kerber and Rick Rothacker
BOSTON/CHARLOTTE, March 25 Bank of America Corp
(BAC.N) Chief Executive Brian Moynihan will need to hold shares
likely worth millions of dollars for at least a year after he
retires, under a new compensation policy that the bank
instituted following investor pressure.
The new compensation policy also requires some other top
executives to keep a minimum number of shares of the bank at
least until they retire, according to correspondence between the
bank and the U.S. Securities and Exchange Commission that was
seen by Reuters.
Previously, Moynihan, 53, only needed to hold some stock in
the company until retirement, while other top executives did not
have such a holding period requirement.
Bank of America said its board adopted the new stock
ownership and retention requirements: “In order to demonstrate
the alignment of the interests of the Company’s executive
officers and directors with those of the Company’s stockholders
A bank spokesman on Friday declined to comment on the
changes, which have not previously been reported. The bank has
posted details of the policy in the corporate governance
guidelines found on its website at link.reuters.com/xeh86t
Bank of America’s new stock-retention policy comes as
investors increasingly demand that executive compensation be
tied more closely to a company’s performance over the long term.
Asking executives to hold some stock in their company until they
retire - or even after they do - is designed to give them
incentives to avoid risks that could blow up down the road.
“A step in the right direction is better than the status
quo," said John Chevedden, an activist shareholder who pushed
for changes at Bank of America. Chevedden said he has not been
able to study the bank's language in detail to comment further.
Compensation consulting firm Farient Advisors estimates that
among companies in the Standard & Poor's 1500 index, some 80
percent have guidelines calling on executives to own at least
some stock in the company, said Jack Zwingli, the firm's head of
About 40 percent have mandated minimum "holding periods"
during which executives cannot sell at least some of the stock
they are awarded as compensation.
Both figures have increased from prior years, and show a new
urgency by companies to please shareholders who now get advisory
votes on corporate pay plans, Zwingli said.
"It's really an outgrowth of the 'Say on Pay' votes, so
companies have been putting more shareholder-friendly practices
in place,” he said, referring to the advisory ballots that
companies are required to offer shareholders under the
Dodd-Frank financial reforms.
NEW PAY POLICY
Bank of America's new stock retention policy followed an
effort by the bank to block a Chevedden-backed proposal that
would have required its top executives to retain some of the
shares until reaching what the proposal called "normal
retirement age" as defined by a BofA retirement plan.
After Bank of America received the proposal, an attorney
representing the bank asked the SEC to allow the bank to exclude
it from its proxy because it already had a retention policy in
place. The bank's proxy is expected to be filed as soon as next
The SEC initially rejected the request in a Feb. 15 letter
that was seen by Reuters. A week later, the bank's lawyer wrote
back seeking reconsideration based on its new policy, and the
SEC then granted the proxy exclusion request.
Moynihan already had to "hold at least 500,000 shares of the
company's common stock and retain at least 50% of the net
after-tax shares from future equity awards," as the new policy
requires. But the new policy changes the holding period to
"until one year following retirement" from "until retirement."
Similarly, other top executives are required to hold at
least 300,000 shares of the bank's common stock, plus half their
after-tax award shares. The new policy adds the time requirement
- "until retirement" for these position.
Moynihan's compensation last year totaled $12.1 million,
with more than 90 percent of it in stock awards. [ID:nL1N0BJAIB]
In writing to the SEC, the bank’s lawyer suggested that
compared with Chevedden's proposal the bank was being stricter
with its executives, since his proposal only referred to having
them own stock "until reaching normal retirement age" and in
theory the executives could serve longer.
Not all investors see it the same way.
“People who make millions and leave early, they’re not
necessarily working until retirement,” said James McRitchie, who
publishes CorpGov.Net, a site about shareholder reform efforts.
McRitchie sponsored a similar proposal at Apple Inc (AAPL.O)
that would have had executives hold stock until normal
The measure won support from 30 percent of shares voted at
Apple's annual meeting on Feb. 27.
Apple had argued in its proxy filing that the measure was
not necessary, partly because of new guidelines that would
require CEO Tim Cook to own shares of Apple stock with a value
equal to ten times his base salary. That level is among the
highest of any Fortune 100 company, Apple said.
Holding stock for a long time horizon does not always
guarantee a good outcome for shareholders or top executives. In
2010, former Citigroup Inc (C.N) CEO Charles "Chuck" Prince
described at a hearing in Washington how he held on to bank
shares he had accumulated over about 30 years, and watched as
they fell from $50 each to less than $1 during the financial
Despite the pain, he said, "I think a model that requires
you to have that kind of alignment with the stockholders is a
(Reporting By Ross Kerber in Boston and Rick Rothacker in
Charlotte, N.C.; Editing by Paritosh Bansal and Tim Dobbyn)
Keywords: BANKOFAMERICA CEOPAY/STOCK
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