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Around the country, Washington Mutual (WM, news, msgs) regularly plays the tough guy with homeowners who fall behind on mortgages. This as foreclosure filings overall rose 60% nationwide in February.
And its involvement in the subprime mess has been tough on stockholders. Since last summer, the company's shares have lost nearly 80% of their value.
But the bank is a softy when it comes to bonus pay for top brass.
After CEO Kerry Killinger and other top executives missed all or a big part of their bonus pay last year, Washington Mutual wasted little time taking steps to apparently make sure it won't happen again -- even if the mortgage market and the company remain in the tank.
The board decided in February to use different performance yardsticks that could make it look like Killinger and other top executives were doing great jobs -- and all but ensure them millions of dollars in bonuses for 2008.
Those huge losses piling up because of subprime loans and foreclosures? At bonus time, the bank will ignore them.
"I would love to be able to do that," says Judy Lederman, a single mom in Scarsdale, N.Y., who won't be able to ignore the financial consequences of a potential foreclosure. She recently lost her job as a regional public-relations manager for a major retail chain. Washington Mutual handles her mortgage."I'm stupefied at the prospect of losing my home and scared stiff of the financial implications," she says.
Changing the rules
She'll be held to the rules in her mortgage agreement. Washington Mutual execs will collect bonus pay under new, easier-to-satisfy rules:- Bonuses are now linked to achievements like growth in retail banking fees. That hardly seems a strenuous hurdle given the way ATM and other bank fees are rising.
- Executive bonuses will be doled out for squishy achievements such as improvements in customer loyalty.
- When the bank does use traditional metrics like profitability, it won't count the impact of mortgage losses and foreclosure costs.
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"This throws the whole concept of pay for performance out the window," says Rich Ferlauto, the director of pension and benefit policy for the American Federation of State, County and Municipal Employees (AFSCME). "Management of subprime risk was central to the obligations of the CEO and other top executives at Washington Mutual. So to take that out of the pay formula isn't a rational approach to allocating rewards. It seems that everyone is suffering except the executives who were directly responsible in some manner for the subprime crisis."
Ferlauto recommends shareholders vote against board members who serve on pay committees that pull such antics.
Little sympathy for homeowners
The situation seems ironic to at least one financial adviser working in the trenches with homeowners trying to negotiate flexibility on mortgages because, like Lederman, they recently suffered a job loss, an illness or some other hardship beyond their control."I find Washington Mutual the most difficult when I try to negotiate forbearance agreements which are the last hope for people who are about to lose their homes," says Michael Sichenzia of Dynamic Consulting Enterprises, a Deerfield Beach, Fla., company that offers homeowners help in avoiding foreclosure. "I would love to have them recognize that we have available candidates for workouts and forbearance, but they just aren't doing it."
Washington Mutual spokesman Derek Aney responds: "We have been among the leaders in trying to keep people in their homes. We lose and the homeowner loses when the foreclosure occurs. I do not believe that characterizing us in that way is fair."
Aney says Washington Mutual helped 35,000 homeowners avoid foreclosure last year through loan modification and other kinds of assistance.
In its corner offices, Washington Mutual is generous. If the bank meets its watered-down performance hurdles this year, Killinger stands to pocket $3.6 million as a bonus for 2008, or about 365% of his base salary.
Shockingly, he'd get that bonus even if shareholders see more lousy performance at Washington Mutual. Killinger is at least partly responsible, given that he led the bank so deeply into the subprime morass. The company reported a nearly $1.9 billion loss in the fourth quarter of 2007, and analysts have forecast losses throughout 2008.
That's assuming his base salary this year is the same as the $1 million reported for 2007, the most recent number available. Without a bonus, he got $5.2 million in total compensation last year, according to company filings. That was down from $14.4 million in 2006, including a $4.1 million bonus.
For meeting the new, lowered bonus hurdles, Chief Operating Officer Stephen Rotella would get a $2.8 million bonus, or 304% of his base pay this year. And Thomas Casey, the finance chief, would get $1.2 million, or 179% of his base pay.
Continued: 'Pretty nice jobs, aren't they?'
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