Sterling Bancorp (STL) changed how it paid top executives after shareholders voted against the New York company's compensation plan last year.

Despite efforts to address investor concerns, Louis Cappelli, Sterling's chairman and chief executive, is in line for a big payday — about $5.2 million —when the company's sale to Provident New York Bancorp (PBNY) closes. His estimated severance is bigger than golden parachutes for recently departed CEOs of much larger banks such as John Koelmel of First Niagara Financial Group (FNFG) and Cathy Nash of Citizens Republic Bancorp.

Overall, severance payouts are smaller than those that existed before the financial crisis, industry observers say. But executive compensation laws still allow directors to pay outgoing executives any amount they choose.

"It's a discretionary payment," says Todd Sirras, managing director at Semler Brossy, a compensation consulting firm. "It all depends on the person and the board."

Severance payments vary. Victor Karpiak, former president and CEO of First Financial Northwest (FFNW), received just $180,000 in severance last month, although he had been at the Renton, Wash., company since 1977. A New York activist investor, Joseph Stilwell, forced Karpiak to retire after a long proxy battle, based on accusations that the ousted CEO had mismanaged the $902 million-asset thrift.

Banks are approving smaller severance payments because of dissidents' emphasis on pay packages, says Lawrence Seidman, an activist investor in Parsippany, N.J. Most modern-day severance packages have limits on the size of parachute payments, adds Seidman, who was not involved in the First Financial proxy fight.

Other industry observers agree that activists have been successful pushing for change.

"Clearly the view that senior executives and CEOs should receive outsize severance has been in decline for a while," says Alan Johnson of Johnson Associates, who consults with banks on pay issues.

First Financial Northwest did return calls seeking comment.

Nash, former president and CEO of Citizens Republic, was estimated to receive $4.3 million when FirstMerit (FMER) bought the Flint, Mich., company in April. Analysts and investors had commended Nash for her work in turning around the troubled institution.

Nash's severance could have been larger; FirstMerit insisted on a "cutback" that reduced her cash payment by about $2.1 million, according to a March 1 proxy statement. The cutback was added to avoid the "payment of an excess parachute payment as that term is defined" by the Internal Revenue Code, the filing said.

Typically, companies are not required to implement cutbacks on severance payments, though many employers negotiate them into employment contracts, says Michael Melbinger, a lawyer at Winston & Strawn who leads the firm's executive compensation group. Citizens participated in the Treasury Department's Troubled Asset Relief Program, which had limits on executive pay.

A spokesman for FirstMerit, in Akron, Ohio, did not return a call seeking comment.

Typically, the amount of severance correlates with the size of a bank, Sirras says. That's because severance is frequently based on a multiple of the executive's base salary, though a package can be reduced if directors are displeased with an executive's performance.

When the $37 billion-asset First Niagara, in Buffalo, N.Y., ousted Koelmel, outsiders speculated that the board grew leery of his aggressive growth plans. Koelmel received nearly $2.9 million in severance, among other benefits, according to an Aug. 9 regulatory filing.

A First Niagara spokeswoman declined to comment beyond the company's quarterly regulatory filing.

Last year, only 40% of Sterling's shareholders backed the $2.7 billion-asset company's compensation plan. Proxy advisory firms Glass Lewis and Institutional Shareholder Services urged investors to vote against the plan, noting that Cappelli was one of the highest earners among CEOs at banks with $1 billion to $10 billion of assets.

After the say-on-pay vote, Sterling took steps to address shareholders' concerns, the company said in an Aug. 14 filing. It made several changes, adding a lead director and reducing Cappelli's base salary. Still, his severance will outpace those of Koelmel and Nash, even though, based on assets, Sterling is smaller than First Niagara and Citizens Republic.

At Sept. 4, no one has filed regulatory documents objecting to the sale. Sterling's shareholders will meet Sept. 26 to vote on the deal.

A Sterling spokeswoman said that "a very substantial portion" of Cappelli's compensation consisted of retirement benefits that were "actuarially determined" based on long-term service. Sterling's biggest shareholders — BlackRock and DePrince Race & Zollo — did not return calls seeking comment.

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