BofA didn’t have to fork over $11 million to departed execs
This post was co-written with Erin Geiger Smith.
Like hundreds other Twitterati this weekend, we read with righteous amusement Joshua Brown’s Reformed Broker screed against Bank of America. The bank, you probably know, disclosed Friday in a Securities and Exchange Commission filing that it is paying former executives Sallie Krawcheck and Joseph Price a total of $11 million for the pleasure of their departure, a year-long non-compete agreement, and a promise not to sue for, as the British say, being made redundant. The Reformed Broker found the deal offensive, to say the least.
“This is why they hate you and want you to die,” Brown wrote, in a post that ricocheted around Twitter like tween commentary on Kim Kardashian’s wedding. “Elevenmilliondollars? What the hell world are you inhabiting?” Brown wrote. “You look completely ridiculous with news like this at a time when thousands of people are massing in every major city in the country to make the case that you don’t deserve to exist. At a time when you’re being investigated for employing robosigners just to maintain a certain level of foreclosures processed per month. At a time when you’re laying off rank-and-file employees not by the hundreds, not by the thousands — but in the tens of thousands…This Is what you do with the money? With OUR money? Are you crazy?”
We assumed — and we know we’re not alone in this — that BofA had to fork over the $11 million to Krawcheck and Price because the October 6 “separation agreements” were part and parcel of their prior employment contracts. That was the infuriating but understandable explanation AIG offered in 2009 when Congress raked it over the coals for paying $169 million in bonuses to some of the execs who cratered the company.
But guess what we found out Monday? BofA didn’t agree to pay Krawcheck and Price $11 million because it had to. The bank is doing so because it wants to. We’ll explain that below. But what we still don’t know, after poring through SEC filings, is why the bank — which was excoriated for paying billions in bonuses to Merrill execs after the 2008 merger; which has a share price fluttering around $6; and which recently announced its intention to charge customers for the privilege of paying for purchases with their own money — would agree to payments that seem like little more than a PR disaster.
Bank of America, according to a March 30 BofA proxy filing, does not have contractual golden parachute deals in place for its top execs. “We do not have any agreements with our executive officers that provide for cash severance payments upon termination of employment or in connection with a change in control,” the proxy said. Although Joe Price’s employment agreement is not public, Krawcheck’s 2010 agreement does not guarantee any money in the event she’s asked to move along. (A Bank of America spokesperson declined to comment for this article.) No pre-existing contract, in other words, required the Bank to come up with “separation” cash for Krawcheck and Price.
And in fact, the peculiar definition of the payouts to the two former execs underlines how discretionary they were. A Reuters story discussing the payout cited a compensation consultant who said the payouts to Price and Krawcheck were in line with severance packages for executives of their stature and pay grade. But the Krawcheck and Price deals aren’t severance packages, usually agreed upon for top executives when the employment begins. They’re separation agreements, in which Price and Krawcheck are required to provide “consulting services” if the bank wants them. They’re also required not to recruit former BofA employees, so there’s presumably some competitive value to getting their signatures on those separation agreements.
But mostly, we suspect, the bank was worried enough that Krawcheck or Price might not go quietly into their post-BofA life that it was worth $11 million dollars to buy lasting peace. That’s rank speculation: We don’t know the internal negotiations that led to the separation agreements or what cards Krawcheck and Price held that could make this a sound business decision. But clearly, BofA weighed the risk of enraging the public against the risk of leaving Price and Krawcheck hanging in the wind. Given the history of the last few years, we probably shouldn’t be very surprised at the choice Bank of America made.
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