Bank of America Chief Executive Brian Moynihan will need to hold shares likely worth millions of dollars for at least a year after he retires, under a new compensation policy that the bank instituted following investor pressure.
The new compensation policy also requires some other top executives to keep a minimum number of shares of the bank at least until they retire, according to correspondence between the bank and the U.S. Securities and Exchange Commission that was seen by Reuters.
Previously, Moynihan, 53, only needed to hold some stock in the company until retirement, while other top executives did not have such a holding period requirement.
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Bank of America said its board adopted the new stock ownership and retention requirements: "In order to demonstrate the alignment of the interests of the Company's executive officers and directors with those of the Company's stockholders ..."
A bank spokesman on Friday declined to comment on the changes, which have not previously been reported. The bank has posted details of the policy in the corporate governance guidelines found on its website.
Bank of America's new stock-retention policy comes as investors increasingly demand that executive compensation be tied more closely to a company's performance over the long term. Asking executives to hold some stock in their company until they retire - or even after they do - is designed to give them incentives to avoid risks that could blow up down the road.
"A step in the right direction is better than the status quo," said John Chevedden, an activist shareholder who pushed for changes at Bank of America. Chevedden said he has not been able to study the bank's language in detail to comment further.
Compensation consulting firm Farient Advisors estimates that among companies in the Standard & Poor's 1500 index, some 80 percent have guidelines calling on executives to own at least some stock in the company, said Jack Zwingli, the firm's head of information services.
About 40 percent have mandated minimum "holding periods" during which executives cannot sell at least some of the stock they are awarded as compensation.
Both figures have increased from prior years, and show a new urgency by companies to please shareholders who now get advisory votes on corporate pay plans, Zwingli said.
"It's really an outgrowth of the 'Say on Pay' votes, so companies have been putting more shareholder-friendly practices in place," he said, referring to the advisory ballots that companies are required to offer shareholders under the Dodd-Frank financial reforms. (Read More: World's Safest Banks)
New Pay Policy
Bank of America's new stock retention policy followed an effort by the bank to block a Chevedden-backed proposal that would have required its top executives to retain some of the shares until reaching what the proposal called "normal retirement age" as defined by a BofA retirement plan.
After Bank of America received the proposal, an attorney representing the bank asked the SEC to allow the bank to exclude it from its proxy because it already had a retention policy in place. The bank's proxy is expected to be filed as soon as next week.
The SEC initially rejected the request in a Feb. 15 letter that was seen by Reuters. A week later, the bank's lawyer wrote back seeking reconsideration based on its new policy, and the SEC then granted the proxy exclusion request.
Moynihan already had to "hold at least 500,000 shares of the company's common stock and retain at least 50% of the net after-tax shares from future equity awards," as the new policy requires. But the new policy changes the holding period to "until one year following retirement" from "until retirement."
Similarly, other top executives are required to hold at least 300,000 shares of the bank's common stock, plus half their after-tax award shares. The new policy adds the time requirement - "until retirement" for these position.
Moynihan's compensation last year totaled $12.1 million, with more than 90 percent of it in stock awards.
In writing to the SEC, the bank's lawyer suggested that compared with Chevedden's proposal the bank was being stricter with its executives, since his proposal only referred to having them own stock "until reaching normal retirement age" and in theory the executives could serve longer.
Not all investors see it the same way.
"People who make millions and leave early, they're not necessarily working until retirement," said James McRitchie, who publishes CorpGov.Net, a site about shareholder reform efforts. McRitchie sponsored a similar proposal at Apple that would have had executives hold stock until normal retirement age.
The measure won support from 30 percent of shares voted at Apple's annual meeting on Feb. 27.
Apple had argued in its proxy filing that the measure was not necessary, partly because of new guidelines that would require CEO Tim Cook to own shares of Apple stock with a value equal to ten times his base salary. That level is among the highest of any Fortune 100 company, Apple said.
Holding stock for a long time horizon does not always guarantee a good outcome for shareholders or top executives. In 2010, former Citigroup CEO Charles "Chuck" Prince described at a hearing in Washington how he held on to bank shares he had accumulated over about 30 years, and watched as they fell from $50 each to less than $1 during the financial crisis.
Despite the pain, he said, "I think a model that requires you to have that kind of alignment with the stockholders is a good one."