If a long-time CEO has only a few months left on the job, should he accept a cash bonus to hang around until the very end?

That question was hypothetically posed to Scott Smith, the chairman and chief executive of Fulton Financial (FULT) on Monday by two shareholders during the $16 billion-asset company's annual meeting.

Fulton paid Smith a $1.3 million "cash retention award" last September, with an understanding that the retiring executive stay on the job until the end of this year. Smith, who was presiding over his last annual meeting, also agreed to stay clear of any Fulton rival until January 2015.

Shareholder Doug Thomas described Smith and other directors as "arrogant, condescending and greedy and counter to the best interest of Fulton shareholders" for approving the award, which he said equated to a cash bonus.

"What was the need for the retention bonus? Was Scott going somewhere?" Thomas asked at the meeting, held in the company's home town in Lancaster, Pa. "Did he threaten he wouldn't hang around the extra year until Phil [Wenger] was scheduled to take the helm? Who gets million-dollar retention bonuses for a year's worth of work?"

E. Philip Wenger, the company's president and chief operating officer, is slated to succeed Smith.

Thomas' comments were made as shareholders at other banking companies have become increasingly vocal and critical about executive compensation. Shareholders at Citigroup (NYSE: C) and Bank of New York Mellon (BK) rejected compensation plans at those companies in nonbinding say-on-pay votes this year.

Fulton gave Smith the $1.3 million retention award based on recommendations made by the board's human resources committee and by McLagan, a unit of Aon Hewitt, a compensation consulting firm, according to the company's proxy statement. The board approved the award to position Smith "closer to the median compensation level among Fulton's peer companies."

The award was also intended to "provide an incentive to Mr. Smith to arrange a smooth transition for his successor as he approaches retirement age," the proxy said. The award is subject to a clawback policy, if Fulton adopts one.

Smith defended the award during the annual meeting, saying Fulton uses "independent outside consultants" for advice on compensation, and bases its pay decisions on peer comparisons.

"Compensation is what it is. You're talking to a farm boy from southern Lancaster County," Thomas responded. "I know these numbers are big. But if you look at any - every salary, everybody's compensation in the company is based on the market."

Laura Wakeley, a Fulton spokeswoman, defended the compensation and the level of disclosure Fulton provided shareholders.

"The human resources committee and ultimately the board evaluate all of the items ... to determine a level of compensation that is appropriate," Wakeley wrote in an email, noting that 92% of voting shares backed the compensation set for key executives.

Fulton gave Smith total compensation of $2.3 million last year, according to its proxy statement. That was an increase from his 2010 compensation of $1.5 million. Smith's $2.3 million pay package for 2011 excludes the $1.3 million cash bonus.

Fulton shareholders approved compensation for Smith and other executives in a say-on-pay vote.

Smith said 92% of voting shares approved say-on-pay, though Fulton had not posted the official results as of Tuesday morning.

In a report recommending shareholders approve compensation for Smith and other Fulton executives, proxy advisory firm Institutional Shareholder Services made note of the $1.3 million cash award, but did not criticize it. ISS said Smith's pay is "approximately 0.66 times the median of CEO pay at companies of a similar industry and size."

ISS also said that Smith's pay was "reasonably aligned" with his company's performance, Thomas disagreed. Fulton stock was priced at $16.69 a share on Jan. 1, 2006, Smith's first day as CEO, Thomas said during the annual meeting. The stock now trades below $11.

"That represents a loss through today of 37%," Thomas said.

Thomas said he covered Fulton as an analyst for 20 years and is now president of Jet Investment Research in Lancaster, Pa.

Both Thomas and another shareholder, Herb Zimmerman, criticized Fulton directors during the annual meeting for cutting the dividend. "The cash dividend per share [on Jan. 1, 2006] was 14.5 cents per share, twice what it is today," Thomas said. "If any of us turned in performance like that, we'd be out of work."

While other banks maintained dividend levels during the economic downturn, Fulton cut its dividend, Zimmerman said. "Notwithstanding the difficult off-sided economic times, yada, yada, yada, over the past couple of years … [other] banks managed to get through those difficult times without a single dividend cut, not one," he said.

Smith did not respond to comments made by Thomas and Zimmerman about Fulton's dividend.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.