The chairman of a major Washington Mutual union, the American Federation of State County and Municipal Employees (AFSCME), is calling for WaMu shareholders to withhold support for the members of the company’s Human Resources Committee. The opposition is based on, as the union put it, the company’s “exclusion of extraordinary charges” related to subprime losses from bonus calculations for WaMu executives.
“We believe that a strong link between pay and performance is a fundamental principle of good corporate governance and creates the appropriate incentive structure for top executives that aligns the compensation programs with shareholder value creation,” AFSCME chairman Gerald McEntee wroter in a letter to holders. “We believe that it is especially objectionable when a compensation committee takes steps to circumvent an objective and measurable pay standard.”
Directors being opposed are directors James Stever, Stephen Frank, Charles Lillis, Phillip Matthews and Margaret Osmer McQuade. They will come up for a vote at the April 15 annual meeting.
In an E-mail response to CFO.com, the company took issue with previous characterizations that WaMu’s actions were designed to “omit subprime losses from bonus calculations.” It noted that in the HR Committee’s three-step approach, the company would still review “other appropriate factors and measures of company financial performance.” The company stressed that it “has a history of paying for perofmrance.”
Last week, Change to Win (CtW) Investment Group, a pension fund advisory group, recommended to withhold votes from Stever and Pugh.
Investors became upset last month when the WaMu board’s HR committee said the 2008 bonus formula would not take into account the huge losses the financial services giant has suffered from the housing crisis. According to a regulatory filing, the bonus plan will consider, among other factors, the company’s 2008 net operating profit, calculated as operating profit before income taxes and “excluding the effects of loan loss provisions” other than related to its credit card business, and expenses related to foreclosed real estate assets.
As a result, CFO Thomas Casey is in line to receive 179 percent of applicable base salary. The thrift’s chairman and chief executive, Kerry Killinger is looking at a potential bonus of 365 percent of base salary.
In January WaMu announced a fourth quarter 2007 net loss of $1.87 billion, or $2.19 per diluted share. The company attributed the loss to the $1.6 billion after-tax charge to writedown home loans goodwill and the higher level of provisioning stemming from the housing market weakness.
“While losses and write downs are generally not part of any management’s ‘business plan,’ we fail to see why they should be excluded from calculations used to determine executive bonuses when income and expense metrics are selected as performance criteria,” McEntee stated in the letter.