Executive gambles, cuts gold parachute
Ex-Fleet banker may bolster status at Bank of America
By Sasha Talcott, Staff Writer
Thursday, October 27, 2005
Brian T. Moynihan, the highest-ranking former FleetBoston Financial Corp. executive still left in Boston, told Bank of America Corp.'s board of directors yesterday that he will scrap his employment contract -- a move that could make it easier to fire him.
The decision is a high-stakes gamble for Moynihan, 46, who follows in the footsteps of Bank of America's chief executive, Kenneth D. Lewis, in working without a contract. Moynihan could enhance his status within the bank and brand himself as an aggressive newcomer who takes risks to be successful. But if Moynihan is fired, he will wind up with millions less than he otherwise would have earned.
''That takes a lot of guts: He doesn't know where he stands in the political pecking order yet," said Tony Plath, a professor at the University of North Carolina at Charlotte.
Moynihan made his decision despite that all four of his Fleet colleagues given key positions at Bank of America have since left the bank. In two of those cases, the executives' employment contracts helped make sure they each walked out the door with $20 million or more. Moynihan is president of the bank's global wealth and investment management division, which is based in Boston.
In voiding the employment contract, which he signed after Bank of America bought Fleet in April 2004, Moynihan gives up the right to ''enhanced severance" pay if he is fired -- valued at well over $6 million. He would still get some amount of severance, but not nearly as much. Yesterday, he also told the board to freeze payments into a lucrative retirement plan set up under Fleet, which already guarantees him more than $600,000 per year, but would have increased in value well beyond that.
A Bank of America spokesman, Terry Francisco, said Moynihan canceled his contract because he believes in Bank of America's pay-for-performance philosophy. He said Moynihan was traveling and unavailable for comment. Francisco also declined to make any of the bank's directors available for interviews.
It is highly unusual for a top executive to give up an employment contract, said Charles Peck, a compensation specialist for the Conference Board, a nonprofit organization that researches business management and economics.
''It may indicate a certain nobility of character," he said. ''But aside from that, I can't think of a good reason for giving up the contract."
Lewis, Bank of America's chief executive, earned national praise after he decided to give up his employment contract in December 2003, several weeks after he unveiled the $48 billion acquisition of Fleet. The move sent a message to Wall Street that Lewis was willing to stake his professional career on the success of the merger.
Corporate governance specialists often frown on employment contracts, because they essentially reward executives for poor performance by giving them huge severance payments if they are fired. They also mean that executives get protection that's not available to their workers.
''Getting rid of the contract leads to greater accountability," said Charles M. Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.
In mergers, however, the contracts also provide protection to senior executives at the acquired company. Frequently, those executives are given jobs directly after the deal, but they either leave voluntarily or are pushed out just months later.
After the Fleet merger, four former Fleet executives were awarded employment contracts, including Moynihan. Francisco, the Bank of America spokesman, said no other executives who report to Lewis have employment contracts. Moynihan's contract would have expired in 2007.
Moynihan earned more than $11 million in salary, bonus, and stock last year. On top of that, his decision to cancel his employment contract yesterday will accelerate $5 million in payments to him that he earned under change-of-control agreements at Fleet.
''We're not talking about a guy who's going to eat peanut butter and cat food if he loses his job," said Plath, the UNC professor.
Moynihan's division of the bank, wealth management, earned $1.8 billion in revenue in the third quarter, up about 14 percent from $1.6 billion in the same period in 2004. Its net income jumped 22 percent to $583 million, from $476 million last year.
Wealth management includes mutual funds, the bank's brokerage operations, the private bank for the wealthy, and ''premier banking" for those with more than $100,000 in investable assets.
Sasha Talcott can be reached at firstname.lastname@example.org.