New Bank of America Corp. (BAC) CEO Brian Moynihan faces an unenviable set of challenges as he seeks to polish a tarnished image and reclaim public trust.
Moynihan, who officially took charge on January 1, won’t have to wait long for the first test of his leadership.
According to a Wall Street Journal published on January 8, investment bankers at Bank of America are to receive bonuses at a comparable level to those they received in 2007.
The bonus payouts reflect Merrill’s recovery after a $27.6 billion loss in 2008.
While some bankers are expected to receive bonuses equal to what they got in 2007, the overall average is likely to be “somewhat” lower, said a person familiar with the matter.
While 2007 was not a record year for bonuses at the combined firm, the mere announcement of bonuses is likely to reignite controversy over the culture of investment banking compensation in general, of which bonuses are a standard component, and specifically Merrill’s pay culture which triggered regulatory and congressional probes that contributed to the unexpected retirement of Chief Executive Kenneth Lewis.
The Journal interviewed company spokesman Robert Stickler. Stickler declined to comment on specific bonus amounts but said the figures still could change and must be approved by the bank’s board later this month.
“Therefore, no one should make assumptions about amounts,” he said. “We are a pay-for-performance company. Any generalities about levels of salaries are inaccurate to the extent that we pay individuals based on their own performance, the performance of their unit and the performance of their company.”
Under the basic formula likely to be used by Bank of America, about 25% of 2009 bonuses will be paid in cash, with the rest as deferred payments of stock or cash that will vary in value with the company’s performance, these people said. Portions of pay for many executives would be subject to clawbacks in the event of future losses.
The 75%-25% stock-cash split is higher than it has been in previous years for Merrill and Bank of America, said a person familiar with the structure. The goal is to discourage the taking of outsize risks that would hurt the company’s future performance, this person said.
Some of the deferred stock would be in the form of “phantom units” subject to fluctuations in the bank’s share performance and available in increments of cash over a three-year period. Bankers expect to be told about their pay in late January or early February. The amounts will be awarded in mid-February.
Moynihan was a key figure in the Merrill purchase, which was completed on Jan. 1, 2009.
Securing board approval would help him claim an important victory with both sides.
Already, the announcement of bonuses near 2007 levels is calming tensions among former Merrill executives and tamping down talk of more defections. “Nobody is talking about leaving,” said one person familiar with the matter. Most investment bankers at Bank of America came to the company as part of the Merrill deal.
This arrangement could also cool tensions among the bankers who were with Bank of America prior to the Merrill deal and saw their bonuses drastically reduced in 2008.
Analysts expect the Charlotte, N.C., bank to report a fourth-quarter loss of about $4 billion, according to Thomson Reuters. The company is struggling to overcome the recession and is incurring a charge related to its December return of $45 billion in bailout funds to exit from the U.S.’s Troubled Asset Relief Program.
