Bank of America’s (NYSE:BAC) CEO Search Hits Another Hurdle: Compensation

Bank of America (NYSE: BAC) continues to seek a new chief executive, but troubles appear at each turn. Now, it seems that a major hurdle in the search will be the ability to offer pay commensurate with the position.

While the Bank has allegedly compiled a list of well known and respected senior leaders at other top institutions, being able to bait any of them to join the firm will be a daunting task. Last week, rumors swirled that the bank is not limiting it’s geographic scope to the Charlotte area, a key signal that the firm was open to a CEO in New York, Chicago, or even LA (close to it’s major lines of business).

The newest rumors, however, state that William Demchak, a Senior Vice Chairman of PNC Financial Services Group Inc (NYSE: PNC) spurned the feelers put out from BAC, seemingly driven by the concerns of federal pay limits that may be imposed.

U.S. government pay Czar Kenneth Feinberg’s approval will be required for any compensation package offered, since the firm has outstanding TARP commitments (to the tune of $45 Billion). Traditionally, in order to attract an executive from another firm, you would need to buy out their existing shares in their firm in a replacement type deal, and given Demchak’s tenure with PNC, this would be quite expensive.

Many market participants have argued that the added regulation, like the pay czar’s compensation limits, hurts the ability to compete with other financial firms. Kenneth Lewis, the current Bank of America CEO is planned to retire at the end of 2009, and the search for his successor will be a significant story in the coming weeks. Under pressure, Lewis gave up his 2009 salary and bonus at Feinberg’s request, which is highly unlikely to occur with his successor.
While two internal candidates have expressed interest, Bank of New York Mellon’s CEO Bob Kelly, and BlackRock CEO Laurence Fink have either declined the post, or denied interest to begin with.

This is all going on while the bank is striving to integrate mortgage giant Countrywide Financial, and the retail brokerage business of Merrill Lynch & Co. It seems the pay restrictions and oversight are generated from the government’s concern regarding the credit quality of many of the loans outstanding, an issue not likely to be resolved any time soon. Once the bank’s loan book stabilizes, it can start to pay back the money it borrowed from the U.S. government, which came with some serious strings attached including Feinberg’s control of compensation for top executives.