Chief Executive Officer James Herbert, 66, and Chief Operating Officer Katherine August-deWilde, 62, each received 4.9 million stock options pegged at $15 a share in July, $10.50 below the $25.50 estimated price in documents for the initial public offering. The grants include options that vest over four years, with some tied to continued employment and some to performance, according to the San Francisco-based bank.
The payments were outlined by First Republic for an IPO that may raise $280.5 million. Proceeds for the bank will be $92.4 million; the rest will go to fees, expenses and backers that include private-equity firms General Atlantic LLC and Colony Capital LLC. The deal would value the entire company at $3.27 billion, six months after Bank of America sold the firm to the current owners for $1.86 billion.
“When you get guarantees just for sticking around, you go back to the same old days of pay plans that caused so much outrage,” said Frank Glassner, chief executive officer of Veritas Executive Compensation Consultants LLC in San Francisco. “These types of guarantees trigger what is widely considered poor compensation practices.”
Greg Berardi, a spokesman for First Republic, declined to comment while the IPO is pending.
The two executives could gain $51.8 million each from exercising stock options if Colony Capital and other investors achieve specified returns on their initial stakes by June 2012 and June 2013, according to the offering.
Herbert founded First Republic in February 1985 and was joined in July that year by August-deWilde, according to the company. Herbert had been CEO of San Francisco Bancorp, a publicly traded lender he co-founded in 1980, while August- deWilde had been chief financial officer at PMI Group Inc., the mortgage insurer.
First Republic was sold to Merrill Lynch & Co. in September 2007 for $1.8 billion, then became part of Bank of America two years later when the Charlotte, North Carolina-based lender, the biggest in the U.S. by assets, took over New York-based Merrill.
Herbert’s company specializes in “jumbo” mortgages for luxury homes, as well as business lending and wealth management. It’s been profitable every year and ranked 44th in the U.S. by deposits as of Sept. 30. The firm has increased loans by an annualized 24 percent and deposits by 22 percent since the end of 2006, according to the offering.
“I suspect that there’s some premium going on here simply because of their history with the company,” Mark Borges, a compensation consultant with Compensia Inc. in Corte Madera, California, said in an interview. The executives “took them through the various ownership arrangements.”
Herbert’s total compensation in 2009 was $7.1 million, First Republic said in its Nov. 29 prospectus. August-deWilde’s total compensation was $5.4 million. Their ex-boss, Bank of America CEO Brian T. Moynihan, received $6 million for 2009, including a $5.2 million bonus, and his payment was stretched over three years.
Moynihan was head of the consumer bank in 2009 before he became CEO. His predecessor, Kenneth D. Lewis, received no salary or incentive compensation in 2009. Bank of America and other lenders that received U.S. bailouts faced limits on executive compensation. The bank repaid $45 billion to the U.S. last December.
This year, employment contracts for Herbert and August- deWilde provide base salaries of $750,000 and an annual cash bonus of 0.5 percent of pretax annual net income.
First Republic relies on “personalized, relationship- based” banking and said its “deep client relationships” have been a principal reason for its success. The bank could be hurt by the departure of Herbert or August-deWilde, or the loss of some of its biggest customers, according to the risk factors listed in the offering. About 1 percent of the bank’s accounts hold 34 percent of total deposits.
The public offering may be priced as early as Dec. 6 and is managed by Bank of America, Morgan Stanley and JPMorgan Chase & Co.
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