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Wall Street Journal, April 14, 2009 article


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MANAGEMENT   |   APRIL 14, 2009

Investors Diverge as Votes on Pay Near

As shareholders push for more say on executive pay, an early group of government-mandated pay votes by investors indicate the results may be messy.

At Regions Financial Corp., two big shareholder advisers have recommended support for the bank's pay plan, while a third is urging a "no" vote.

Meanwhile, two big pension funds oppose the plan, one citing concern over hefty severance packages and the other saying not enough pay was tied to performance. A third fund supports the plan, arguing that the bank's policies are improving.

Regions and several smaller banks seeking shareholders' views this week are among the roughly 400 recipients of federal bailout funds. They are required to give their holders an advisory vote on compensation, also known as "say on pay," as part of the February economic-stimulus package. The votes come amid outrage over big paychecks at lenders, and they precede votes in coming weeks at Citigroup Inc., Bank of America Corp. and American International Group Inc. Congress may extend the mandate to all public companies later this year.

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Shareholders already vote on executive pay in Britain, Australia, Sweden and the Netherlands. While those votes are also generally nonbinding, proponents say public pressure can help curb pay.

For big U.S. investors, the novelty of their role and the sheer number of pay plans involved are likely to result in heavy reliance on the three largest proxy advisers: RiskMetrics Group Inc., Glass, Lewis & Co. and Proxy Governance Inc. And those advisers evaluate pay plans differently.

RiskMetrics uses a detailed checklist to compile an overall assessment and is heeding client requests not to go "too easy" on bailout recipients, says Carol Bowie, director of its Center for Corporate Governance. Glass Lewis compares last year's pay levels with those of peers and looks at financial performance. The firm suggests "no" votes only for "pretty egregious" problems, says Chief Policy Officer Robert McCormick. And Proxy Governance considers pay versus performance over several years.

The result: RiskMetrics and Glass Lewis are urging investors to support the Regions pay plan, while Proxy Governance recommends a "no" vote Thursday.

Regions, of Birmingham, Ala., took a $3.5 billion capital injection in November amid real-estate losses in Georgia and Florida. It later reported a $6.2 billion loss for the quarter ended Dec. 31. Its shares have also performed worse than those of its peers over the past five years, Proxy Governance says.

But Regions executives have benefited from a string of acquisitions, particularly the purchase of AmSouth Bancorp in 2006, Proxy Governance adds.

For example, CEO C. Dowd Ritter, who formerly headed AmSouth, got restricted stock valued at more than $12 million for staying at Regions in 2007, and Proxy Governance estimates Mr. Ritter's average compensation at $13.8 million a year over the past three years, 84% more than the pay at peers. Pension funds run by the United Brotherhood of Carpenters and Joiners and the American Federation of State, County and Municipal Employees are voting "no."

RiskMetrics, on the other hand, says the bank's pay practices are improving and deserve support. The Florida State Board of Administration, a pension manager, and mutual-fund firm Calvert Group Ltd. agree.

A Regions spokesman declined to comment on the proxy advisers' analyses.

Investors and advisers are also split at Valley National Bancorp and Lakeland Financial Corp., both of which are holding annual meetings Tuesday.

RiskMetrics says the banks' boards adjusted bonus criteria to give executives more money. "That sort of goal-post shifting is a huge concern for us," says Francis G. Coleman, executive vice president at investment manager Christian Brothers Investment Services.

The lenders' CEOs -- and other proxy advisers -- disagree. Valley National CEO Gerald Lipkin says that his board adjusted earnings targets to exclude things out of management's control, and that his pay -- about $2 million in 2008 -- is lower than that of his peers even though the stock of the Wayne, N.J., bank has performed better.

Lakeland CEO Michael Kubacki says his bank, which is based in Warsaw, Ind., reported its 21st consecutive profit increase last year, and the board rewarded executives for doing well in a tough year. "There's a context here that's being missed," says Mr. Kubacki, who got $663,000 in salary and bonus.

Write to Phred Dvorak at


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