The Burlington Free Press (Vermont)
As the possibility of layoffs lingers over Chittenden Corp.’s 2,200 employees, executives at the Connecticut bank that is buying Chittenden are awaiting shareholder approval of a bonus estimated to be worth more than $170 million.
The exact number of people who would split the payments has not been determined. People’s United Financial Inc., which plans to buy Chittenden for $1.9 billion in cash and stock, would divide the bonus package between key officers and employees, People’s United Bank spokesman Brent Di Giorgio said. Chittenden Corp. officials also could receive a payout. That, too, remains undecided, he said.
The stock package, called a “recognition and retention plan,” follows the Bridgeport, Conn.-based bank’s April conversion to a fully, publicly traded company.
“The purpose of recognition and retention plans is to directly align the interests of directors and employees with those of shareholders,” Di Giorgio said.
The hefty pay package and the likelihood of layoffs at Chittenden — discussed by the CEO of People’s United when the deal was announced in June — should not be considered simultaneously, Di Giorgio said.
“They are two separate events and they are not related to one another,” he said. “On the employment front, we’ve said no determination has been made.. our intent is to employ as many customer service employees as possible so Chittenden customers will experience a seamless transition.”
Hugh Marble, an assistant professor of finance at the University of Vermont, echoed the bank spokesman’s remarks.
“You almost have to treat those things in isolation,” he said, noting “Anything like this is always controversial. It’s very difficult for outsiders looking in to determine what’s fair and reasonable. I think that’s the underlying issue. In some sense, it’s their decision to make on whether that is appropriate,” Marble said of People’s United shareholders. A shareholder vote on the bonus plan will be held Oct. 18.
“There is a temptation by lay people to see those things as much more related than they actually are; to see the layoffs in Vermont as driving the retention plan, or bonus, in Connecticut. And that’s just not reality,” Marble said.
Efforts to contact Chittenden Bank officials were unsuccessful.
A typical reward
When a bank fully converts to a publicly traded bank, it is common for compensation plans to be created, said Damon DelMonte, a banking analyst at Keefe, Bruyette & Woods Inc. in Hartford, Conn., who is familiar with both People’s United and Chittenden Bank.
Typically, he said, stock awards are worth about 4 percent of the deal.
This spring, People’s United raised $3.44 billion when the bank sold 174 million shares of stock held by its mutual holding company, People’s Mutual Holdings. The holding company owned 58 percent of the bank.
The transaction made People’s United fully owned by stockholders, Di Giorgio said, calling the process “a second-step conversion.” Four percent — 6.9 million — of the shares sold is set aside for the stock award plan.
Typically, DelMonte said, “top-tier senior executives and key personnel” split the package. Given the size of the deal, he said the compensation package “is not surprising.”
The Foundation for Taxpayer and Consumer Rights, a nonprofit consumer group based in Santa Monica, Calif., disagreed — calling the bonuses “out of whack.”
“I think that’s a corporate analyst perspective that is not in touch with regular people on the ground. … $175 million might not mean a lot at the corporate finance level, but it does have a real impact at the human level,” the group’s executive director, Douglas Heller, said. “And you don’t just give away $175 million and not feel it.”
Heller said People’s United might cut costs or raise fees to make up for the giveaway. “I don’t know what this bank might do, but they will look to recoup this money, these golden gifts, one way or another.”
The recognition and retention plan has two parts: a stock award plan and a stock option plan, Di Giorgio said.
The first component awards 6.9 million shares of People’s United common stock. At Thursday prices, that is about $123 million.
The second part of the bonus is more complicated, making it harder to determine the exact value. When the plan was announced in April, its estimated value was $50 million. Both bonus packages are typical, DelMonte said.
Combined, the package is estimated to be worth about $173 million. A decline in stock prices will reduce the value of plan, however, and an increase would boost the value.
Layoffs?
If Chittenden’s sale to People’s United is approved, it is likely that Chittenden — Vermont’s largest bank–will face layoffs.
Including Chittenden’s subsidiaries, the bank operates 133 branches, 54 of which are in Vermont. People’s United has about 160 branches. People’s United expects to close on the transaction in the first three months of 2008. Shareholders from both banks and government regulators must approve that deal.
When the sale was announced in late June, People’s United president and CEO John Klein said there would likely be jobs cuts in “areas of redundancy,” but the bulk of the jobs would remain. Chittenden had 1,000 employees in Vermont in June.
Di Giorgio said “it’s too preliminary to know” when and where jobs would be cut after the acquisition.
Chris D’Elia, president of the Vermont Bankers Association, met with Klein recently and said no decisions have been made on layoffs.
“That’s always a possibility,” he said of job cuts. “That’s what certainly happened in other mergers and consolidations that have occurred.”
“It all depends on the analysis and the review of the merged entity and the direction they want to move,” D’Elia said. “There is no set rule or formula.”
It is typical, however, for layoffs to follow bank acquisitions — particularly in back office, corporate functions.
This year, for example, TD Banknorth Inc. cut 400 jobs, including 30 in Vermont, four months after the bank was bought by TD Bank Financial Group, a large Canadian bank.
Chittenden’s acquisition by People’s United will be handled differently, Di Giorgio said.
People’s United wants to expand into northern New England, he said, noting People’s United is primarily located in Connecticut and New York’s Westchester County.
“It is our intention to keep all those branches, so that bodes well for employee retention,” Di Giorgio said.
—————-
Contact Dan McLean at 651-4877 or [email protected]
