By Boris Ladwig, The Republic
bladwig@therepublic.com
Three Irwin Financial Corp.'s top executives received total compensation of more than $11 million from 2006 to 2008, while the corporation lost nearly $400 million.
During those three years, Chairman and Chief Executive Officer Will Miller received an annual base salary of $650,000 and total annual compensation, including stock awards, of about $1.4 million, according to the company's most recent proxy statement.
Greg Ehlinger, senior vice president and chief financial officer, was paid an average annual base salary of nearly $315,000 and total annual compensation of roughly $542,000.
Brad Kime, who during those three years served as president of Irwin Union Bank, received an average annual base salary of about $298,000 and total annual compensation of about $534,000.
IFC filed for bankruptcy on Monday, three days after federal and state agents seized all 27 branches of IFC's banks and facilitated their takeover by Cincinnati, Ohio-based First Financial Bancorp.
The collapse has wiped out shareholder value of roughly $1 billion, including about $400 million of Miller's holdings.
The three executives received higher salaries and total compensation from 2006 to 2008 than their counterparts at First Financial Bancorp, which, in terms of assets, was about the same size as IFC. They also earned more than the executives at Evansville-based Old National Bancorp, which was about twice as big.
They also received a higher base salary that executives at Chicago-based Corus Bank, another bank that failed recently, though the IFC executives received lower total compensation than those at Corus, which also was about twice as big as IFC.
Comparisons difficult
Diane Denis, Duke Realty Endowed Chair in Finance at Purdue University's Krannert School of Management, said executives' base pay typically does not change when the corporation performs poorly.
And, she said, comparing one company's executive salaries to another presents difficulties partially because each company may have a different way of rewarding its leaders, with some companies focusing more on bonus pay and stock awards.
In general, when companies perform poorly, one would expect to see a decline in bonus pay and the value of options, Denis said.
Miller did not receive a bonus in any year from 2006 to 2008. Ehlinger and Kime received one in 2008.
Non-Equity Incentive Plan compensation for all three declined from up to $150,000 in 2006 to zero in 2008.
In addition, Denis said, any changes in salary or other annual compensation, particularly for Miller, were dwarfed by the declining value of their IFC stock.
The average CEO owns about 1.5 percent of a company's stock, Denis said, so Miller, who held about 38 percent, had much greater incentive than the average CEO to make sure that his company was performing well.
"There's no shareholder who suffered as much as he did," Denis said.
Retention bonus
Over four months starting late last year, three Irwin Financial Corp. executives also received about $300,000 bonus pay while the corporation was losing money and struggling through a painful restructuring.
At the end of each of the four months, IFC planned to pay an extra $105,000 Kime, $101,000 to Ehlinger and $85,000 to Chief Information Officer Matt Souza.
IFC's compensation committee approved the bonus to provide "an incentive for these officers to accomplish the corporation's restructuring plan."
IFC's compensation committee includes Chair Sally A. Dean, a retired senior vice president of Dillon, Read & Co., an investment bank that now is part of UBS; Brenda J. Lauderback, a former executive of clothing retailer Nine West Group; and Lance R. Odden, managing director of New Providence Asset Management Corp. and chair of New Providence's Governance Advisory Board.
Denis said that such retention bonuses are typical.
When a company's leaders see that the company is struggling, it has to figure out the best way to bring the company back to profitability, Denis said.
That typically requires making sure that it retains the best people.
And executives have to worry that those capable people have a value on the open market and may be inclined to go elsewhere - especially if their company is failing.
"Economically speaking, it could be a very good thing to (pay the bonuses)," Denis said.
However, she said, for people outside the company, it is difficult to determine whether the people who were paid the bonuses were critical to saving the company from bankruptcy - or were among the reasons for it.