Senior investment banking executives at Bank of America Corp will likely see as much as 80 percent of their 2010 bonuses in stock, but the cash portion will be higher than what was paid out last year, said a source familiar with the company's pay plans.
The bonus payments are the first since the Troubled Asset Relief Program, or TARP, pay restrictions were lifted last year. But they still reflect a new climate around compensation, as payouts have not returned to the more cash-heavy mixes paid before the financial crisis.
The compensation pool for global banking and markets -- BofA's investment bank division -- is down after the unit reported a worse year in 2010 than 2009.
Net income declined by 37 percent to $6.3 billion in 2010 from $10.1 billion a year prior, and total revenues for the division declined 12.6 percent to $28.5 billion in 2010 from $32.6 billion in 2009.
The smaller compensation pool is paired with an increase in the number of employees, after a hiring spree by the bank overseas, particularly in Asia, the source said.
The likely decline matches an industrywide decrease in bonuses, and an increasing reliance on cash deferrals and stock.
For BofA's 2010 bonuses, senior executives' payouts will still be heavily weighted toward stock, but cash will play a larger role than it did last year.
Senior executives will typically receive 70 percent to 80 percent of the bonus in stock, with the remaining 20 to 30 percent in cash.
Last year, BofA investment bankers received as little as 5 percent of their bonus in cash, because the company's 2009 compensation was subject to TARP pay restrictions.
We feel that our pay practices are fair and appropriate for our employees and our shareholders, a company spokeswoman said.
For more junior executives, the formula is reversed. Bonuses will be comprised of up to 70 percent cash, and 30 percent stock, a source said.
The stock component, however, appears to be becoming a larger piece of investment banker bonus pay.
Before Merrill Lynch's sale to BofA at the height of the financial crisis, the cash portion of its investment bankers' bonuses peaked at around 40 percent.
Corporate governance and compensation experts said this year's pay plans were constructed knowing banker bonuses would still be a hot-button topic for critics of the industry.
The thing to watch is once the spotlight is off pay practices -- if there is less shareholder pressure -- whether it will slide back to what it used to be, said Charles Elson, director of the University of Delaware's center for corporate governance.
The increase in stock may also be tied to trying to retain investment banking employees for a longer period.
Bank of America Chief Executive Brian Moynihan has said expanding the company's investment banking operations overseas will be one of the keys to the company's long-term growth, and the bank has hired 800 new employees overseas in 2010.
The global banking and markets unit's net income of $6.3 billion in 2010 made it the most profitable of Bank of America's six major divisions.
The bank's global banking and market unit, run by Thomas Montag, houses the combined investment banking operations of Merrill Lynch and Bank of America.
BofA bought Merrill at the height of the financial crisis for $19 billion in January 2009.
(Reporting by Joe Rauch; Additional reporting by Prakash Chakravarti in Hong Kong; Editing by Gerald E. McCormick)