Austerity has led to the demise of the ultimate of senior executive perks: retirement plans.
On Friday Bank One Corp. disclosed that it has discontinued its retirement plan for senior executives, a move that representatives of the Chicago company called a bid for fairness.
Also last week First Union Corp. of Charlotte, N.C., said it had ended an executive retirement plan and would tie future bonuses more closely to the companys performance.
It is a fairness issue, said Thomas Kelly, a spokesman for Bank One. The executives should not have a pension plan the average employee doesnt have.
Bank Ones senior executive plan, which paid benefits to certain executives older than 55 who had 10 years of service to the company, will not accept new applicants. Those who qualified as of yearend will stay in the program, but their annuity payouts have been frozen.
Senior executives at Bank One have made other sacrifices as well, Mr. Kelly said. For example, the highest-paid executives are paying higher health insurance premiums this year. This lets other employees know that the senior executives do not have automatic entitlements, Mr. Kelly said.
Compensation consultants said such moves also help banking companies cut costs, a particular focus at companies like Bank One and First Union these days. For example, by eliminating its retirement plan, First Union expects to save $16 million over five years. Bank One plans to save $50 million by eliminating executive perks, including the retirement plan.
Len Adams, chief operating officer at KPA Staffing Group in New York, said the moves by the two companies should be looked at as a cost-savings initiative. Bank One and First Union could be cutting the retirement plans in order not to lay off workers, he said. If we go back to the late 80s, people made noise about this.
Cash bonuses have also gone by the wayside. In its annual proxy statement filed Friday with the Securities and Exchange Commission, Bank One said it paid no cash bonuses to some senior executives last year.
That includes James Dimon, the chief executive officer who joined the company last March and whose contract at the time provided for a $2.5 million bonus for last year. Mr. Dimon got a salary of $750,000 and stock options valued at about $27 million.
One-third of the senior executives who are members of Bank Ones planning group, which is led by Mr. Dimon, did not get bonuses last year, though the payments were guaranteed in their employment contracts, according to the companys proxy.
James S. Boshart 3d and Charles W. Scharf, two executive vice presidents who joined Bank One last year, also did not get cash bonuses. Mr. Bosharts salary was $157,692, and Mr. Scharfs was $269,231.
Meanwhile, two Bank One executives who announced their retirements last year did collect cash bonuses. William P. Boardman, who retired last month, got a salary of $607,885 and a $250,000 bonus. Geoffrey L. Stringer, who is scheduled to retire in the second quarter, got a salary of $273,558 and a $600,000 bonus.
Verne G. Istock, the former chairman who was interim CEO after John B. McCoy resigned in December 1999 and until Mr. Dimon was hired, got a salary of $765,385 last year and a severance package of $8.3 million when he retired in August, but he did not officially get a bonus.
Other banking companies have jettisoned executive bonuses this year, including First Union and SunTrust Banks Inc. of Atlanta.
David Hilder, an analyst at Morgan Stanley Dean Witter & Co., said the move to stop retirement perks and bonuses is not surprising. The companies are really trying, in a number of ways, to align pay with performance, he said. All of these changes are in that direction.
Mr. Kelly said Bank Ones performance was not very good, last year. When we do perform, they will benefit.
