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BB&T Cuts CEO's Pay

Zacks Equity Research

North Carolina-based BB&T Corporation (BBT) announced a reduction in Chief Executive Officer (CEO) Kelly King’s remuneration for 2013. King received $7.84 million as compensation package, which marked an 8.3% decline from 2012.

The CEO’s annual incentive award as offered by BB&T for 2013 declined 29% to $2.0 million, which resulted in the lower pay. However, other salary components showed an improvement of up to 2%.

While the base salary increased 1.7% to $996,250, restricted stock and options award were up 1.7% to $2.79 million. Moreover, long-term incentive package was $2.06 million, rising 2.0% from 2012.

What could have prompted the pay cut?

Looking at the break-up of the remuneration, we find that the base salary was just 13% of the total compensation. The remaining 87% is variable and is a function of the company’s performance, which highly depends on the CEO’s efficiency.

For full-year 2013, BB&T earnings declined on a year-over-year basis. Moreover, the parameters like net income and return on average assets that determine the annual incentive award witnessed a downturn.

BB&T’s 2013 net income came in at $1.6 billion, declining 15.8% from $1.9 billion in 2012. Return on average assets slipped 19 bps to 0.96% in 2013.

Should this weak performance be a concern for the shareholders?

Though BB&T’s performance for 2013 was not particularly encouraging, its fourth-quarter results were impressive. Moreover, BB&T maintained an average positive surprise of 2.4% in the trailing four quarters.

The Zacks Consensus Estimate for 2014 increased 1.0% over the last 60 days with 10 estimates revising upward. Moreover, for 2015, the Zacks Consensus Estimate advanced 1.2% with 11 estimates moving north over the same time frame.

However, we remain skeptical about the persistent pressure on BB&T’s top line, given the sluggish economic recovery, considerable exposure to problem assets and various regulatory issues.

BB&T currently carries a Zacks Rank #3 (Hold). Some better-ranked banks include Fifth Third Bancorp (FITB) and The PNC Financial Services Group, Inc. (PNC). Both these stocks have a Zacks Rank #2 (Buy).

Notably, BB&T is not the only bank that reduced its chairperson’s pay. Among other major regional banks, U.S. Bancorp (USB) also announced a 41% cut in CEO Richard Davis’ total compensation package on a year-over-year basis. Davis’ salary fell primarily due to the lower value of his future retirement benefits.

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