Bowing to his company's longstanding mandate to keep a tight rein on expenses, the chief executive officer of Trustco Bank Corp. in Glenville, N.Y., said he is cutting his annual compensation in half and reducing the salaries of two senior executives.
Robert A. McCormick, who was paid $2.6 million in salary and bonuses last year, told shareholders at the company's annual meeting Monday that he was "overpaid." Besides cutting his salary and bonuses by 50%, he said, he would trim the salaries of chief financial officer Robert T. Cushing and senior vice president Nancy A. McNamara by 15%, all starting next year.
Mr. McCormick, 64, declined to discuss the decision, but company spokesman John L. Pritchard said the reductions were a "management initiative" and were not suggested by the board. The move does not anticipate earnings trouble either, Mr. Pritchard said. Trustco, which has $2.5 billion of assets, reported 10% growth in net income, to $11.3 million in the first quarter.
Mr. Pritchard said Mr. McCormick regularly reviews the costs of every area of the multibank holding company and "took a hard look at it, made a decision, and informed the board."
"He takes a knife to all of the costs at the bank, and this is the one that was next," he said.
Trustco, which is widely known for running a lean organization, recently reported an efficiency ratio of 39.56%, one of the best in the industry.
David Swinford, a managing director at the New York compensation consulting company Pearl Meyer & Partners, characterized Mr. McCormick's move as "radical." He said it is very unusual for an executive to reduce base salaries unless the company has missed financial goals or if "there is some other point of pain in an organization," such as layoffs, though it is less uncommon to see executives refuse bonuses.
Mr. Swinford was scratching his head over the "overpaid" remark, however. "I can't ever remember hearing an executive say, 'I make too much money,' " he said, though he has "heard them say they don't deserve this amount at this time."
Though Mr. McCormick has expressed concern in the past about the limited growth opportunities in his region of Upstate New York and has said the company would like to expand outside the state - to as far away as Florida or as close as Massachusetts - shareholders should be satisfied with the company's performance.
Shares of Trustco, which have hovered around $12 the past three months, are trading at 3.8 times book value, compared with two-times-book at its peers, said Claus W. Hirsch, an analyst at Corinthian Partners LLC in New York. Given the company's "superb" performance and lofty, 24% return on equity, Mr. Hirsch said, he is not surprised that it trades so high. But "compared to tech companies, it's dirt cheap," he said.
Mr. Hirsch said he could only assume that the decision to shrink top executives' compensation packages was an effort "to keep showing improvements in the efficiency ratio."
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