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!