M&T Bank Corp.'s top two executives won't be getting any stock options this year. Instead, their options will be parceled out to bank employees, from tellers to data-entry clerks.
Chairman and Chief Executive Officer Robert G. Wilmers and Vice President Robert E. Sadler Jr. turned down their annual awards so that the options could be granted to 10,000 employees, many of whom rarely get the same chance as bank executives to profit from the company's rising stock price. M&T has its headquarters in Buffalo, N.Y., and a major presence in Baltimore.
High-tech companies, followed by those in other industries, have been granting stock options to broader swaths of their work forces for decades. It's unusual, however, for companies to award options to rank-and-file workers and not to executives, said Diane Posnak, managing director at Pearl Meyer & Partners, a compensation consulting firm.
"I've hardly ever seen that. Usually, if they don't want the options, they don't give them to anyone," Posnak said. "Psychologically, it's giving the employees club membership. It's not going to make them millionaires."
M&T Chief Financial Officer Michael P. Pinto said the bank has periodically given employees the chance to own stock through options - the last time was in 1999 - as a way to retain and motivate them. The bank also believes managers should own stock so that their fortunes are aligned with those of shareholders, he said.
Directors and executives own about 10 percent of the bank's stock, according to a filing with the Securities and Exchange Commission.
"We like to have employees stay with us for a long time," Pinto said, "and it seems to be working in terms of making people excited to work with us."
M&T employees, part-time and full-time, who have been with the bank for more than a year will get 10 or 20 options that allow them to buy stock at today's prices when the options vest in several years. The bank is informing employees about the details of their grants, spokesman Philip Hosmer said, and will award a total of 125,000 stock options to employees.
The amount the stock rises above the exercise price represents a profit. For example, had the company bestowed 20 options on an employee three years ago, the employee could now reap about $460, about $390 after capital-gains taxes.
By comparison, Wilmers got 90,000 stock options in 2002, and he made $15.4 million before taxes last year by exercising 200,000 of his nearly 1 million options, according to an SEC filing. He could exercise his remaining options for more than $50 million. Sadler got 75,000 stock options in 2002 and exercised more than 74,000 for $4.7 million last year.
Wilmers and Sadler also gave up their stock options in 2003 and last year. Those options were distributed to managers, including those who joined the bank after it bought a majority stake in Baltimore's Allfirst Financial Inc. in late 2002 for $3.1 billion in cash and stock.
Brandon Rees, a research analyst with the AFL-CIO's office of investment, had "faint-hearted praise" for M&T's plan. He said more needs to be done to narrow the pay gap between corporate executives and average workers. According to the labor union's Web site, a minimum-wage worker would have to work 88 years to earn Wilmers' 2003 pay package of $944,245 in salary, bonus and other compensation.
"It's an intriguing idea," Rees said, "but we don't think the individual generosity of CEOs will solve the problem because there's too much executive greed out there."
M&T has increased the overall number of stock options it doles out, even after the bank started reporting stock options as an expense on its balance sheet in 2003. M&T granted 2.1 million options last year, up from 1.9 million in 2002.
A new rule from the Financial Accounting Standards Board will require U.S. companies to deduct the value of stock options from their profits starting in June.
"We didn't change any of our philosophies because of the new accounting," Pinto said.
The effort to give employees a stake in the growth of the bank could backfire if the stock price falls, Posnak said, noting that employees don't have much of an impact on the financial performance, which determines how the market values the bank's shares. Still, she said, employees will appreciate the sentiment.
"I think the message they're trying to send is, they care about these people," she said, "and they're also saying they think the stock will be worth something."