By Frank Cho
Advertiser Staff Writer
Pacific Century Financial Corp., the parent company of Bank of Hawai‘i, will pay new Chief Executive Mike O’Neill $1.5 million — not including options for 2.2 million shares — to turn around the company’s financial performance.
The options, which are spread over three years, have a potential value of $18.9 million, according to documents the company filed yesterday with the Securities and Exchange Commission.
But the compensation package, which makes the former Bank of America executive one of the highest-paid chief executive officers in the state at more than $1 million a year, is not without risks.
O’Neill has no contract and no "golden parachute," usually a package that would pay an executive handsomely if they were fired or the company was taken over by another firm.
The agreement with O’Neill includes a base salary of $900,000, subject to annual review, and a bonus of $600,000 payable Nov. 3. Analysts yesterday called O’Neill’s salary "fair" and said that much of it is tied to the company’s future performance.
"It’s modest cash and a lot of stock. As the company share price goes up, everyone is certainly going to benefit," said Jim Bradshaw, a banking analyst with D.A. Davidson & Co. in Portland, Ore.
O’Neill was named chairman and chief executive officer Nov. 3 to replace Lawrence Johnson, who retired last year. Since then, the new CEO has made increasing the company’s flagging stock price his primary focus.The company’s stock had traded as low as $13.25 a share last August. Today, it closed at $20.50, down 15 cents.
On top of the $11.3 million in Pacific Century stock he already holds, the bulk of O’Neill’s compensation is in the form of stock options.
Pacific Century calculated the value of options for top executives based on potential profits if company shares rise a certain percentage during the term of the options. Some other companies can use a formula to estimate the value of options on the day the board awards them.
Because the SEC lets companies use either method in proxy statements, it is difficult to compare executive pay from one company to another, even if they are in the same industry.
John Pearson, managing director with Korn-Ferry, an executive recruiting firm that helped negotiate O’Neill’s contract, said the chief executive did not want any perks. "He wanted to run a very lean bank," Pearson said.
Pearson said O’Neill’s salary is average when compared with other CEOs of similar-sized banks.
Walter A. Dods, the chairman and CEO of rival BancWest, earned $927,188 in salary and $607,493 in bonuses in 1999, according to the most recently available SEC filings.
O’Neill’s base salary is 22.5 percent higher than the $735,000 Pacific Century paid Johnson last year. Johnson, who presided over some of the company’s most tumultuous times, received a payment of $2.9 million above his normal retirement benefits when he retired, according to company documents filed with the SEC.
"Larry was a loyal company guy for 40 years. It allowed the company to bring in a new CEO with an aggressive plan so we see it as money well-spent," Bradshaw said about the severance payment.
Frank Cho can be reached at 525-8088, or at fcho@honoluluadvertiser.com
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