As You Sow

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BB&T

Meeting date: April 26, 2016 The day BB&T released its proxy statement this week was the same day SEC Chair Mary Jo White spoke before the Chamber of Commerce mentioning potential regulation and additional scrutiny regarding non-GAAP figures. In our recently released Overpaid CEOs report BB&T had been one of only 24 companies that received a red flag for the extent of its use of Non-GAAP figures (based on a report we acquired from Analysts Accounting Observer). One concern regarding pay for performance generally is that it can incentivize financial engineering. Systemic problems are harder to spot the more “non-recurring charges” there are. BB&T, which has acquired over 30 banks since 1999, has a challenging enough account statement to unsort.

GAAP – as you may know – stands for “generally accepted accounting principles.” One reason to have and abide by such agreed upon principles in disclosure is that it allows for comparisons between companies. BB&T bases some of its compensation on such comparisons, but as far as we can tell, it compares its non-GAAP figures to other’s GAAP figures.

BB&T’s stock has fallen more than 15% since August. Yet BB&T CEO Kelly King’s non-equity incentive compensation actually increased from $3.4 million to $4.1 million. More than half of that cash bonus is based on a Long Term Incentive Pay (LTIP) plan for a period covering 2013 to 2015. In fact, as noted in the proxy, ”Increases in 2015 total compensation paid under our regular compensation program resulted primarily from payments under the 2013-2015 LTIP.”

The proxy statement comes with a special appendix titled “Annex A – Non GAAP Financial Measures.” The compensation committee used the adjusted 3-year average ROCE (return on common equity) from this annex of 9.73% rather than the GAAP figure of 8.58%. Under the adjusted figure BB&T states that it performed at the 61st percentile relative to peers, which is how the payment was calculated. However, presumably the company is comparing its adjusted figures to other companies GAAP figures. This comparison is then practically meaningless.

Only 73 percent of shareholders voted in support of pay at BB&T last year. After the meeting last year, in June 2015, the Compensation Committee adopted a “Merger Completion Incentive Program, a unique, one-time incentive opportunity to reward significant strategic achievements related to the successful acquisition and conversion of Susquehanna.”

The company’s proxy statement mentions that it met with several shareholders in the intervening months, and that shareholders were not happy with this merger incentive. Ultimately the company still paid the merger bonus (adding $500,000 to King’s already generous bonus), but with 50% in RSUs, “which are subject to a 3-year vesting period and can be forfeited in the event of a negative risk outcome or annual operating loss.” It is difficult to imagine that in light of other compensation issues at the company that such actions this will be sufficient to appease shareholders.