BB&T Corp.’s board of directors has made a significant shift in executive compensation, eliminating stock options and putting more emphasis on tying the number of shares granted to company performance.
The bank’s listed top-five executives also will not receive an increase in their base salary in fiscal 2017.
The board approved the changes Tuesday.
“In the past year, BB&T has proactively engaged and listened to shareholders regarding our executive compensation program,” spokesman Brian Davis said Wednesday.
“The actions outlined reflect the significant changes we’ve made as a result of those conversations. BB&T’s executive compensation program is incentive-based and reflects a pay-for-performance culture.”
For fiscal 2017, 50 percent of granted share awards will be in performance share units, while the other 50 percent will be in restricted stock units.
Performance shares of company stock are given to executives only if certain company-wide performance criteria are met, such as earnings per share targets, according to Investopedia.
“The goal of performance shares is to tie managers to the interests of shareholders,” Investopedia said. “Their goal is similar to employee stock-option plans, as they provide an explicit incentive for management to focus their efforts on maximizing shareholder value.”
The board made all long-term incentives accrued in 2017 subject to performance and risk-based vesting criteria, which could include reduction or forfeiture “if there is an aggregate operating loss for the performance period or if a negative risk outcome occurs.”
For example, in fiscal 2015, Kelly King, the bank’s chairman and chief executive, received a 5.6 percent raise in salary to $1.06 million. His incentive compensation was up 20.5 percent to $4.1 million.
King received stock and option awards valued at $3.17 million on the date they were awarded and $298,430 in all other compensation. King’s total compensation was down 17.1 percent to $11.7 million.
In 2016, King’s compensation targets were: up to 160 percent of his base salary for long-term incentive performance awards; 224 percent for restricted stock units; and 56 percent for stock options.
For 2017, King’s compensation targets will be: up to 146 percent for long-term incentive performance awards; 147 percent for restricted stock units; and 147 percent for performance share units.
Another performance metric ties compensation to how BB&T compares with designated peers as it relates to return on common equity and total shareholder return.
“This was a very good and productive decision in my opinion, very shareholder friendly and signals that BB&T feels it can reach the upper end of the performance range,” said Chris Marinac, an analyst with FIG Partners.
“This is not a layup by any means, but the organization seeks to perform in the top 25 percent of its large bank peer group and its leaders are willing to eat their own cooking.”