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BofA to Limit Execs' Severance

Policy prevents officers from getting more than double their salary and bonus without shareholders' OK.

October 29, 2002|Chris Burritt | Bloomberg News

CHARLOTTE, N.C. — Bank of America Corp., yielding to the demands of activist shareholders, will restrict the severance pay offered to departing executives, the Teamsters union said.

The third-biggest U.S. bank's highest-paid executives won't be able to pocket more than double their salary and bonus if they decide to quit, unless shareholders give prior approval, Chief Executive Kenneth Lewis told the International Brotherhood of Teamsters in a letter Friday.

The change only affects future severance packages offered by the bank, the letter says.

The union, whose pension fund owns bank shares, called for the limits in the spring, citing severance payments it estimated at $50 million to $100 million to former Bank of America President David Coulter, who quit in 1998.

Concern over executive pay has soared this year amid the wave of corporate accounting scandals. Some executives have departed companies with huge severance packages while their firms' shares have collapsed.

Lewis wrote that the bank's directors adopted the policy in September, after shareholders at Bank of America's annual meeting in April approved the union's nonbinding proposal by a slim margin.

"We wanted to be responsive to our shareholders," bank spokeswoman Eloise Hale said.

With its severance limit of two times salary and bonus, the bank adopted the Teamsters' proposal that is more restrictive than severance packages at many U.S. companies, said Patrick McGurn, vice president at Institutional Shareholders Services in Rockville, Md., a shareholder advisory firm.

Companies typically pay severance at 2.99 times executives' compensation, McGurn said. At a higher multiple, executives would have to pay higher income taxes, he said. Bank of America's lower severance multiple "puts more impetus on bringing the standard down" at other firms, McGurn said.

The restrictions don't cover current employment contracts of executives such as Lewis and Chief Financial Officer James Hance, Hale said. Only those executives who have negotiated severance packages since April 24 and whose compensation will be listed in future proxy statements will have to conform to the new limits.

Lewis, who earned $1.33 million in salary and $5.2 million in bonus in 2001, will fall under the policy when his current employment contract expires Sept. 30, 2004, and he negotiates a new one, Hale said.

Lewis wrote in his letter that Bank of America directors had worked for several months with an independent consultant to develop a policy "that would balance the interests of shareholders with the long-term interests of Bank of America."

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