Edward Crutchfield, chairman and chief executive officer of First Union Corp., and some 250 senior executive employees will forgo cash bonuses for 1999 as a result of unexpectedly low earnings and a sharp decline in the company's stock price.
Mr. Crutchfield got a $2.28 million bonus for 1998. That was double his salary of $1.14 million. For this year, Mr. Crutchfield will not get a cash bonus, but sources close to the company said it is unclear whether he and the others will receive stock options that would effectively replace the bonus if the $235 billion-asset banking company performs well.
Though a First Union official confirmed that there have been discussions about forgoing bonuses this year, a spokesman said the board has not voted on the issue. Directors are expected to decide formally on compensation at their December meeting.
Sources within the company said that as early as last summer Mr. Crutchfield told a group of senior managers that he would voluntarily refuse a cash bonus for 1999.
Last year, based solely on salary and bonus, Mr. Crutchfield was among the 50 best-compensated of 486 chief executives whose companies are part of the Standard & Poor's 500 index, according to a Bloomberg survey.
Other First Union top executives also were paid handsome bonuses in 1998.
John R. Georgius, president and chief operating officer, who said he will leave the company after the disclosure of its lower-than-expected earnings, got a bonus of $1.5 million last year, on top of his $750,000 salary.
G. Kennedy Thompson, vice chairman, got a bonus of $1.9 million and base salary of $400,000.
Robert T. Atwood, executive vice president and chief financial officer, got a bonus of $840,000 and salary of $470,000.
And Donald A. McMullen Jr., executive vice president, got $880,000, plus his $445,000 salary.
One mid-level manager last year got a $140,000 bonus and $200,000 in salary, according to a source.
"They would be tempting a shareholder revolt if they did not do something," said Nancy Bush, a bank analyst at Ryan, Beck & Co. in Livingston, N.J., referring to reports that cash bonuses would be eliminated. "Having the performance that they have had and giving management big fat bonus is just not doable."
First Union lost credibility with investors this year after it twice reduced its earnings forecasts because of troubles associated with its acquisition of CoreStates Financial Corp. First Union bought CoreStates in April 1998.
The company's image also took a hit after analysts claimed that it had managed its third-quarter earnings when it failed to disclose a $23 million nonrecurring gain. That gain added 2 cents a share after taxes, enabling the bank to meet its reduced earnings target.
One analyst cheered the decision to forgo bonuses for 1999. The move aligns management's objectives with those of investors, said Susan Roth of Donaldson, Lufkin & Jenrette, who trimmed her 2000 earnings estimates on First Union Tuesday after visiting Charlotte last week.
Others, however, were little impressed with the move.
Carla D'Arista, a bank analyst at Friedman, Billings Ramsey & Co. in Arlington, Va., said the decision on bonuses implies that the company is holding management responsible for its earnings. "But how the company will meet its 2000 earnings expectations is still a big issue," she said. "The company already has fallen short by more than $880 million in total earnings" for 1999.
She also said a change to stock option compensation from cash could dampen morale at First Union. "It may be a signal to employees that management is on red alert about its ability to achieve its 2000 earnings objectives," said the analyst.
First Union cannot afford to lose more top people, as it did Jack Antonini, a former head of consumer banking who left the company to start an Internet products company. His biggest client is expected to be First Union. Cutting cash bonuses only "compounds First Union's problems," said Ms. D'Arista.
First Union's shares have lost more than 40% since its 52-week high of $65.0625 on Jan. 8. On Tuesday it rose $1.1875, or 3.16%, to $38.75.