How Brian Moynihan became indispensable
Scene: An upgraded and soundproofed “business plan” room, at the O’Hare Hyatt Regency Hotel. A hard-working Director of Bank of America is seated in an overstuffed sofa, picking absently at a plate of salted nuts. On the other side of a sleek coffee table sits his Compensation Consultant, there to report on a reasonable sum to pay Bank of America’s star-crossed CEO, Brian Moynihan. The Director does not look happy; this might be a function of the fact that the company managed to lose $80 billion in market capitalization in 2011 alone. We enter mid-conversation, with the Compensation Consultant somewhat on the back foot.
Compensation Consultant: Most of the time, when we are assigned to recommend compensation packages, we start with the assumption that there is going to be a compensation package.
Director: Well, if enough people say that all options are on the table, I figured that after a while somebody ought to mean it.
CC: Sure, of course. But, still…
CC: You do want to pay him something, don’t you?
D: Do I? Not really.
CC: You should. You need to show that full faith of the board is behind him.
D: Why? Things are so bad that we shouldn’t support him. My mother-in-law complains to me about checking fees. The Countrywide people are complaining that it was us that acquired them. We can’t even keep our website up.
CC: If you don’t clearly back Moynihan, it will signal to the market that there’s disagreement on the board about his future at the company.
D: There is!
CC: Yes, but without a clear successor in place…
D: We went through that before when Ken quit and it doesn’t even come close to the level of the real problems we’ve had over the last year. The stock price, the fees fiasco, even Steve Schwarzman was making fun of us for being a non-profit. Besides, all a succession plan does is give the CEO enough time to decide how he’ll undermine whoever comes next.
CC: But you’re in a tough spot. Maybe you do need new leadership, but who’s going to want to step into this mess?
D: And what does that say about the CEO who got us here and wants to stay? I don’t want to fire him, but I want to come as close as possible. Did you see what Gorman said to his team at Morgan? He called out the whole prima donna show for what it is. And guess what? Most of them stayed. Shocker.
CC: But what if he does leave?
D: Then we’d be in a tough spot? Sure. But we might better off than we are now.
CC: You’d still need to find the right person to fill his shoes.
D: There is no right person! There was one CEO that everyone said was the only person who could run the company that he founded and then, when he died, the stock ripped up. Remember that? Right now we’re in a huge structural hole. No one person is going to lead us out of it. And that’s what I want to say. By paying Moynihan nothing above his salary and benefits for last year.
CC: You can’t do that. The press, shareholders, analysts, employees, they’ll all savage you. The stock is even up a bit in 2012. And if it doesn’t work, it will all be on your head. No, what you need to do is pay him a number that says “don’t leave but we don’t love you.” Make it respectable. Something he can feel proud of. But prudent. Not so much that Congress will lose it. Pay it mostly in stock. People love that. Incentives aligned, that whole thing. Trust me, you can explain it to Charlie Rose with a straight face. Geithner too.
D: What’s the number?
CC: $6.1 million in stock, plus the million in cash and other million in random benefits you’ve already paid him. Then, if things get worse, you can fire him later, but only once you’ve got a replacement lined up.
D: $6.1 million in stock to get the chance to maybe do later what I should do now?
CC: Exactly. And if it happens, it will all be on him. You gave him his chance and nobody can say it wasn’t by the book.
D: Until then, we’ll continue to look oblivious.
CC: But at least that’s not a unique problem.