M&I Compensation Scheme Drawing Ire in both U.S. and Canada

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Bank of Montreal's recent takeover of Wisconsin-based consumer bank Marshall & Ilsley has observers grimacing at BMO's brand of senior compensation, American-style.

And the criticism is coming both from U.S. and Canadian sources.

"Forget the gold watch... Even a golden handshake was elevated to platinum in the case of Bank of Montreal's takeover of Marshall & Ilsley, wrote MarketWatch columnist Bill Mann.

Under terms of the agreement, 17 of the bank's officers are entitled to cash and stock of nearly $90 million after the deal closes, depending on whether they stay with BMO, Canada's Globe and Mail reported.

This at a bank that required $1.7 billion in TARP bailout money.

Yikes. Frankly, at a time when some Canadian recruiters are going after laid-off Wall Street bankers, as we previously reported and with Canadian financial pros touting the stability and restraint of their local banks, not to mention the superiority of their regulatory controls as compared with those of the U.S., this bit of American-style audacity seems hugely out of step.

Even though the TARP money was returned -(BMO agreed to repay the TARP funds, and the Treasury Department says it has now recovered all $1.7 billion).

"It's a deal that presumably has M&I execs high-fiving each other while BMO stockholders and the Canadian (and American) business press are shaking their heads in disbelief," MarketWatch wrote.

A quick bit of history: Early this month, Harris Bank closed on the $4.1 billion acquisition of Marshall & Ilsley Corp., parent to M&I Bank. Toronto-based BMO Financial Group-parent to the Bank of Montreal- is also the parent company of Harris Bank.

Milwaukee-based M&I- offering personal, commercial, small business and wealth management services- had posted eight straight quarterly losses at a time when Bank of Montreal had reported six consecutive quarters of earnings growth. The deal, which closed early this month, was expected to yield 52 new branches for BMO's Harris Bank unit 52 in Illinois and Wisconsin.

Harris has since announced that 475 jobs would be eliminated as a result of the deal. Of those, 175 are related to branch closings and back office administrative functions in Milwaukee. Half of the 100 people to be laid off in Milwaukee will be offered jobs with a Harris vendor.

The bigger issue, though, is the executive payout schedule:

"The result of the plan's configuration is an $18-million cash payout for [M&I CEO Mark] Furlong, potential payments of $4.1-million to $5.5-million apiece for four other top executives, and $26.7-million combined for the remaining 12 officers." Most of the executives - (the CEO excluded)-get their money only if they leave M&I after the deal closes, the Globe and Mail reports.

"The group of 17 also get immediate possession of restricted stock that was supposed to vest over time with their continued service to the bank; M&I estimated its value at $24-million."

Also: "...For five of the 17 executives, [including the CEO], M&I multiplies the annual compensation figure by three when arriving at the payout," says the Globe & Mail. Using a multiple of two-"as M&I uses for the less-senior officers in this bunch," -is a more common approach.

Apparently, the contractual arrangements between M&I and the executives were put in place in 2008, well before BMO came on the scene, and were triggered by BMO's buyout offer.

But if it was all out of the Canadians hands, the Globe and Mail queried: Why chose to promise Furlong an additional $6 million if he completes his first year as CEO of BMO's U.S. banking operations? "Whatever the motivation, the fact remains that a $50-billion bank - less than one-eight the size of BMO - crafted a severance plan that easily exceeds Canadian custom," the article concludes.