The proxy statement is out for U.S. Bank, showing a drop in CEO Richard Davis’ still-hefty 2009 compensation. His package totaled $6.59 million, down 7.9 percent from the $7.16 million he received in 2008.
His 2009 pay was made up of $915,000 in base compensation (up from $900,000 in 2008), $1.59 million in bonus (down from $2.16 million) and $5 million in long-term stock incentives (unchanged from a year earlier). Davis took a 5 percent pay cut and gave up his bonus during most of 2009, but it was restored last fall once U.S. Bank repaid its bailout funds to the U. S Treasury, the so-called TARP funds. His base pay for 2010 was set at $975,000.
In addition, earlier this year Davis and several other executives were awarded retention bonuses in the form of stock that will pay out over several years if the bank hits certain financial goals. Davis’ retention figure is valued at $7 million.
While the eye-popping numbers may be of interest to the curious or the envious, U.S. Bank’s compensation practices and philosophy are certain to generate even more attention across the industry and beyond, in large part because Davis has become much more visible on the national scene as the new chairman of a powerful industry lobbying group, the Financial Services Roundtable, based in Washington, D.C.
In this role, the soft-spoken banker is a highly visible point man for an industry under fire for its compensation practices. In fact, Davis himself in a recent Minnesota Public Radio interview predicted that compensation practices across the industry would be subject to well-deserved scrutiny from shareholders.
“A couple of years ago you couldn’t [influence executive compensation] … I think we’re on the advent of a time where shareholders’ voice and activism will be much more clear,” Davis told an interviewer. “It’s happening already … I think you’re going to see a whole new groundswell of shareholder activism … The shareholder meetings are coming up in the next few months. This is the time they’ll have their opportunity to make it clear how they feel.”
Firms such as Goldman Sachs, AIG and Merrill Lynch — at the center of the financial market meltdown — have received much of the criticism on pay practices. Wall Street’s culture of hefty year-end bonuses have been blamed for creating perverse incentives to make risky bets — such as on subprime mortgages — without having to bear the long-term consequences if an investment blows up a few years down the road. As a result, much has been made of structuring more compensation that is tied to longer-term financial performance.
While it remains to be seen if the rest of the industry will follow U.S. Bank, three items of note stand out in the compensation committee report:
• Davis and the entire management team have a significant portion of their compensation at risk, tied to the bank’s financial performance with an emphasis on longer-term performance. U.S. Bancorp’s earnings per share in 2009 were 97 cents, substantially below the target of $1.87 that had been set by the board’s compensation committee.
As a result, some employees received no bonuses in 2009, depending on their particular business unit goals. Davis and the managing committee members saw their bonus payouts drop substantially in 2009, reaching 31.7 percent of their target.
Of Davis total comp package last year, 76 percent came in the form of long-term equity with 10 percent as bonus and 14 percent in base salary. The heavy weighting to longer-term performance is intended to provide “greater risks and reward potential” to match his management responsibility, according to the proxy.
• U.S. Bank is voluntarily providing shareholders with the opportunity to weigh in on compensation committee recommendations, as it did a year ago, through a non-binding advisory vote. The so-called “Say on Pay” proposal has become a hot topic among some activist investors and members of Congress who propose making the vote mandatory for all public companies.
• The report explicitly lays out where and how U.S. Bank’s pay practices stack up within the industry in which it competes for executive talent. While the bank’s management pay is in the top 25 percent of its peers, the proxy says such above-average pay is justified because of the bank’s financial performance. It outpaced most peers over the past three years, was profitable throughout the turbulent period of 2008 and 2009 and has grown to become the fourth-largest U.S. bank in terms of total assets and stock value (market capitalization).
“The positive performance compared to our peer group resulted from a prudent approach to risk management and balance sheet management over the past several years,” the proxy said.
One wrinkle here: In 2009, Davis’ bonus and long-term incentive were not benchmarked because of “the economic and regulatory turbulence in the industry,” according to the proxy.
U.S. Bank’s board compensation committee is chaired by Jerry W. Levin, who has been a director at the bank since 1995. Levin is chairman and CEO of JW Levin Partners LLC, of New York, and is also a lead director at Ecolab. U.S. Bank’s annual meeting is scheduled for April 20 in Seattle.