March 5 (Bloomberg) -- Washington Mutual Inc., the largest U.S. savings and loan, said 2008 bonuses for Chief Executive Officer Kerry Killinger and other top executives may be shielded from the company's mortgage losses.

Bonus calculations will exclude the effect on profit of loan loss provisions except those taken for credit cards, the Seattle- based company said in a regulatory filing earlier this week. The bank said in January it expects to set aside $1.8 billion to $2 billion to cover bad loans in the first quarter.

Washington Mutual, whose shares are down 69 percent in the past year, reported its first loss since 1997 in the fourth quarter after writing down the value of its home-mortgage unit by $1.6 billion and setting aside $1.5 billion to cover bad loans. Killinger, who took no cash bonus for 2007, is eligible this year for an award of as much as 365 times his base salary.

``This management incentive structure could result in executive focus away from issues, particularly credit management, that we feel are critical to the success of Washington Mutual in 2008,'' Frederick Cannon, an analyst with Keefe, Bruyette & Woods Inc., wrote in a research note.

The board is authorized to ``exercise its discretion'' when it determines final payouts, according to the filing.

``The success with which credit costs are managed will unequivocally continue to be a major part of the board's final deliberations,'' spokeswoman Libby Hutchinson said today in an e- mailed statement.

Killinger's salary for 2006 was $1 million and his total compensation was $14.2 million. Total pay for 2007 hasn't been disclosed. The 58-year-old CEO is eligible to receive 3.2 million stock options in 2008, a 15 percent increase over 2007.

2,900 Employees

In addition to executives, the bonus plan applies to more than 2,900 employees, Hutchinson said. The bank had 48,433 employees as of Jan. 31.

Other executives received about 33 percent of the bonuses they were eligible for in 2007 and had their stock awards cut, the company said in a Jan. 22 regulatory filing.

``It is outrageous to insulate management from the disastrous effects of the mortgage crisis,'' Egan-Jones Ratings Co's proxy services division said in a statement today. The Haverford, Pennsylvania-based company said it may recommend shareholders not vote for members of the human resources committee, the board of directors or the CEO because of ``unsatisfactory compensation practices.''

Washington Mutual fell 59 cents, or 4.4 percent, to $12.80 in New York Stock Exchange composite trading at 4 p.m.

The Wall Street Journal reported Washington Mutual's bonus plan earlier today.

To contact the reporter on this story: Elizabeth Hester in New York at ehester@bloomberg.net.

Last Updated: March 5, 2008 16:18 EST