A big bank pulling off a big acquisition is a, well, big deal.
And, according to the board of BB&T in Winston-Salem, N.C., such a feat deserves a reward — at least when the big deal is integrated and meeting expectations.
The $190 billion-asset company recently disclosed that its compensation committee had earmarked up to $2.6 million for five top executives — payable in cash or restricted stock a year from now — if the integration of the $19 billion-asset Susquehanna Bancshares goes smoothly.
Such bonuses are rare, but analysts said other potential acquirers should take note. Plenty of folks could argue that successfully integrating a deal is part of an executive's job description and already an inherent part of compensation, especially if deals are viewed as a line of business for a bank. Still, there is nothing like a little extra cash to serve as a carrot.
"This financial 'atta boy' tells you how important this deal is to BB&T," said Chris Marinac, an analyst at FIG Partners. "The board feels the team deserves something extra, and I think every bank, even a community bank offering maybe $50,000, could learn something. It is an appropriate way to make it happen. I think most investors would have no issue with it."
In the specific case for BB&T, several analysts said the incentive might be based on a successful integration, but is also an acknowledgement of the amount of work the executives have poured into getting the deal approved.
BB&T, which agreed to the deal in November, announced on Tuesday that it had received approval from the Federal Reserve Board, Federal Deposit Insurance Corp. and all relevant state regulators. The deal is set to close next month.
BB&T has been considered one of the few big banks that could pull off an acquisition. Still, plenty of caution remains as M&T Bank's long-delayed acquisition of Hudson City Bancorp remains in limbo.
"It has been a lot of work to get this and the other two deals done," said Marty Mosby, director of bank and equity strategies at Vining Sparks, referring to BB&T's deals for Susquehanna, Bank of Kentucky and Citibank branches in Texas, which all were approved this year. "This is a strategic move. If they want it to go well, why shouldn't they be rewarded for that?"
The terms of the incentives package call for Susquehanna's systems to be converted by June 23, 2016. Kelly King, BB&T's chairman and chief executive, could fetch as much as $1.03 million. King's salary last year was $1 million, which made up a portion of his $7.2 million in total compensation last year.
Four other officers — Christopher Henson, Ricky Brown, Clarke Starnes and Daryl Bible — could divvy up the remaining $1.5 million available, with Henson and Brown poised to receive a slightly higher payout than the other executives.
The exact amount of incentives will include an assessment of BB&T's performance at the deadline, so the executives could get nothing.
"The Susquehanna merger is an important strategic transaction that will provide long-term benefits to our shareholders," BB&T spokesman David White said, though he didn't discuss specific aspects of the package. The "board's decision to grant this incentive is consistent with the corporation's executive compensation approach linking performance to pay."
Analysts say performance will likely be evaluated on things like earnings accretion — the deal is expected to add 3% to BB&T's annual profit — and delivering on the expected 32% cost savings from Susquehanna. Marinac said it could also involve measures like deposit outflows and new customer inflows.
Of course, pay in most instances is closely linked to performance, namely metrics like earnings per share and returns on assets and equity. So incenting executives with a performance-based special bonus seems odd, said Mike Mayo, an analyst at CLSA.
"The proxy already shows that the bankers gets rewarded for EPS, ROA and ROE growth, so if the integration is successful it should be additive to that metrics," Mayo said. "Why a separate payment?"
Mayo said a bank's asset size is often the leading indicator for pay so, in effect, doing M&A already comes with a bonus by virtue of balance sheet growth. To Mayo, the move lacked explanation and was out of the norm for BB&T.
"Look, they are typically exemplary, but this extra merger incentive payment seems uncharacteristic of them," Mayo said. "On the other hand, it is not the first time bankers have rewarded themselves for mergers."
Other industry observers said the incentive could help keep BB&T focused and disciplined as it looks at more acquisitions.
"The execution on this deal is so important because BB&T would like to continue to do deals," said Stephen Scouten, an analyst at Sandler O'Neill. "I think it is fine to reward them for something that creates a lot of value and, in a perfect world, there would be consequences for underperforming, too."
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