A chief executive's working without a contract, as Kenneth D. Lewis of Bank of America Corp. recently decided to do, is not unusual in corporate America or financial services, but the practice is rare among large banks.
The move by Mr. Lewis, disclosed in a securities filing Monday, brings him in line with CEOs at about two-thirds of the nation's large companies, including financial firms, according to the Corporate Library, a governance research firm in Portland, Maine.
Mr. Lewis is an anomaly among his banking peers, however. Eleven of the top 15 bank chiefs are covered by employment contracts or other protections, such as severance or agreements that promise bonuses, company stock, or other incentives if their companies are sold.
Others who work without contracts are Charles O. Prince at Citigroup Inc., William Harrison at J.P. Morgan Chase & Co., and George A. Schaefer Jr. at Fifth Third Bancorp.
Bank of America characterized Mr. Lewis' decision in December to terminate his contract - which meant giving up pay guarantees, including a big severance payment if he is fired - as a desire to further link payment and performance.
But while many observers view the move as shareholder-friendly, some skeptics expressed concern this week that the absence of a contract could lessen transparency on compensation, especially when an executive is fired or pushed out in a merger.
"When I first got started in this field I thought [not having a contract] was a good thing, because it meant that the CEO could be fired at any time for any reason, and I think that's OK," said Nell Minow, the editor and a founder of the Corporate Library.
"I came to believe that having a contract is a better thing, because when they are fired without a contract the negotiation of the departure is done under the worst possible circumstances, and I suspect - although I haven't proven - that the payout is even bigger under those circumstances," Ms. Minow added.
Others like the idea of CEOs working without guarantees of big paydays if they slip.
Charles Peck, a compensation expert with the Conference Board, a business-sponsored research nonprofit, called Mr. Lewis' step "heartening" at a time when most chiefs demand contracts.
"The story on executive compensation for some time now has been that they seek contracts before going into a new company," Mr. Peck said. Executives want "a contractual amount of compensation" as well as severance protection, he said.
"Here is a top executive from a very large company who has voluntarily given up the protection of a contract and says he will stand or fall with the performance of a company," Mr. Peck said. "There is almost a nobility to this."
But ending his contract does not mean a change in the way Mr. Lewis is paid. A spokeswoman for Bank of America said his salary, bonuses, stock awards, and performance goals are set annually by the board's compensation committee.
His decision is also unique within his own company. It has employment agreements with many top executives, including its chief financial officer and some from FleetBoston Financial Corp., who will join Bank of America when they merge this spring.
The Charlotte company has a history of handing departing executives big checks, including some payments that were not spelled out in contracts but were negotiated as they left.
For example, in Monday's securities filing B of A said it would pay up to $4 million to the head of its asset management group, Richard DeMartini, whose contract it plans to terminate April 1. Last fall New York Attorney General Eliot Spitzer implicated his group in a scandal over mutual fund trading abuses.
Other severance agreements remain confidential or hard to calculate, such as the one the company had with David Coulter, the former BankAmerica Corp. chief. Mr. Coulter was pushed out after it merged with NationsBank Corp. and created the current Bank of America. His exit package is said to have been worth $50 million to $100 million.
In 2002, Bank of America adopted a new policy, put forth by governance advocates and approved by shareholders, that lets shareholders veto big severance agreements.
Brock Vandervliet, an analyst who follows B of A for Lehman Brothers, called Mr. Lewis' move "positive, but not material."
For shareholders, the agreement with Mr. DeMartini "was far more significant" but went largely unnoticed, Mr. Vandervliet said.
Ms. Minow said she believes a good contract, which pays a CEO fairly and links pay to performance, is preferable to no contract at all. But she acknowledged that shareholders do not always examine contracts - good or bad - or hold boards accountable for them.
Ms. Minow cited the case of L. Dennis Kozlowski, the former Tyco International executive who faces tax evasion, stock fraud, and other charges. He worked without a contract for several years, then asked for one in 2001.
The contract he presented and that the board agreed to included a clause stipulating that conviction of a felony would not necessarily be grounds for firing. Ms. Minow said that was probably added to protect his severance payments in case he was fired.
She faulted Tyco's board for complying and said that a contract can show shareholders a board's independence of or coziness with a chief. "It's very revealing about the board of directors - to let you know if they're capable of any kind of push-back against the CEO in negotiations."
Mr. Vandervliet said: "I think the higher you go in an organization the less important a contract is," at least from a CEO's perspective. "If you have a lot of suasion over the board and compensation committee, you don't necessarily need one."
