Inside Financial Services

From BB&T, A Wrongheaded Payout To Executives

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From American Banker, on Friday:

A big bank pulling off a big acquisition is, well, a big deal.

And, according to the board of BB&T in Winston-Salem N.C., such a feat deserves a reward—at least when the big deal is integrated and meeting expectations.

The $190 billion-asset company recently disclosed that its compensation committee had earmarked up to $2.6 million for five top executives—payable in cash or restricted stock a year from now—if the integration of the $19 billion-asset Susquehanna Bancshares goes smoothly. [Emph. added.]

So BB&T executives will pay themselves a special bonus if the bank successfully integrates its Susquehanna Bancshares acquisition? That’s one of the dumbest ideas I’ve ever heard.

First, successful deal integration (especially at acquisition-happy banks like BB&T) is what top executives are expected to do. It’s part of the job!  Why should they get a paid twice for it? Nor is this integration especially risky. Susquehanna is a tenth of BB&T’s size. Even if the integration doesn’t go especially smoothly, then, any glitches will likely be invisible to outside observers. I suspect that no matter how well or poorly the deal works out, BB&T management will find a way to rationalize paying itself that $2.6 million. Pathetic.

Or to think of it another way: if the Susquehanna deal is so uniquely fraught with risk for BB&T that it’s worth a special payout to make sure the job gets done right, BB&T shouldn’t have done the deal in the first place.

It’s not often that I agree with CLSA’s Mike Mayo, but he’s exactly right when he points out to American Banker that BB&T executives are already getting paid based on ROA and earnings growth targets. If the Susquehanna deal goes well, that success ought to show up in those numbers. Mayo also points out, correctly, that bank executives’ compensation is highly correlated to the bank’s size. Given that, BB&T’s executives are going to get a bump in their comp simply for doing the deal in the first place. That they’ve decided to pay themselves twice is ludicrous.

I don’t usually think of BB&T’s management (unlike those of certain other big banks) as the type to squander shareholder money for its own benefit. You might say that $2.6 million isn’t a lot of money to BB&T. It doesn’t matter. This pay provision is totally indefensible.

What do you think? Let me know!

13 Responses to “From BB&T, A Wrongheaded Payout To Executives”

  1. steve hansel

    I agree completely…hope you’re well.

  2. Carter Fowlkes

    Bank execs don’t “pay themselves.” The board does. Your criticism of the situation is valid, but it is the bank board who authorizes these payouts.

  3. Mark

    Well said. And by the way, how exactly does one define “smoothly”? I guess the preferred way for the execs would be to define it after the fact.

    • Dave

      Agree…purely subjective. Should be a up or down shareholder vote for the practice .

  4. Morgan's Mom

    Doesn’t make me want to bank there, for sure! Sounds like you are right on. Who is responsible for this idea, the board? CRazy.

  5. SW Pilgrim

    I’m surprised at the disclosure and I agree with your umbrage. SWP

  6. Cruncher Strongboy CPA

    Simple questions…..

    If it does not go well do they reduce their pay?

    Who judges if it goes well or badly and are they independent?

    Have they established any bench marks that will judge:

    Adequate and ordinary?
    An absorption with minimal positive impact as measured against stated goals, again who set goals?
    An absorption with moderate positive impact as measured against stated goals, again the who set goals?
    An absorption that meets all the positive impact stated when the acquisition was announced, again the dreaded who set the goals?
    An absorption greatly exceeding the positive impact stated when the acquisition was announced, again the dreaded who set the goals?

    The who says what is available at each hurdle blankets this whole process.

    This whole exercise is completely against my thinking.
    I am a shareholder and agree that you do not get paid twice and maybe three time for doing the job, even if performance for the job is presented in multiple ways.
    If this is not withdrawn I will immediately sell my shares and be available as a lead plaintiff in a class action suit against the Board of Directors.

  7. NorthLeftCoast

    Agree that this is egregious behavior on both BOD and Execs part. When did doing one’s job become an excuse for a 2nd bonus? Bad behavior and should be punished by shareholders.

  8. etoleary

    I’ve been through a number of conversions as a member of executive management in two banks over the years and I never expected anything special for it. It’s the job. But, it’s entirely appropriate for a special bonus, payable in cash ideally, to “appreciate” the handful of senior operations people who actually pull these fetes off. They are the heroes of these conversions, not the CEO, CFO, etc. That’s just nuts.

    • Anonymous

      The REAL ‘heroes’ of these mergers are the lower level staff (tellers, operations, support personell) who must deal directly with the public. Executive management doesn’t get screamed at by irate customers. It’s the tellers who bear the brunt of the ire when a small community bank is snatched up and long time account holders come in to vent their frustration. It’s the operations staff that must get things neat and tidy to hand over to the new owner and prepare paperwork and systems for the converstion process. As with most things in life, it is the employees who do the MOST work to prepare for the merger and who have the MOST at stake, who get the LEAST in return. I highly doubt any of the tellers or operations employees (who will find themselves without a job within 10 months) will receive any sort of “appreciative” bonus.

  9. Nevadan

    Well, in 35 years I have been through acquisitions from both sides quite a few times. How do you define it went well? Do you lose less than 35% of the acquired FI’s clients? Do you have employees who ended up in the hospital with nervous breakdowns or not? Did you just plain lose someone’s money in your system? Did you pay less than 30% of normal payroll costs in overtime to straighten transactions out? I can’t even imagine how anyone in the C Suite even knows how the little people thought it went, because a lot of them are going to just leave.

    • Jeanine

      Not to mention the pocitilal backbiting that Gleason has with the Philadelphia Republican Party. I don’t know if it will pay off for them in the long run, but right now, watching them eat their own is fun to watch, as potential Ward Leader fights in Philly eat up resources in a town who has a dead party.

  10. Anonymous

    This is exactly why I quit working for this company. And the lower level employees have to jump through hoops to get a modest bonus.

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