Bank of America DEF 14A 2009
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
Bank of America Corporation
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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March 18, 2009
I am pleased to invite you to the Bank of America Corporation 2009 Annual Meeting of Stockholders. The meeting will be held at 10:00 a.m., local time, on April 29, 2009, in the Belk Theater of the North Carolina Blumenthal Performing Arts Center, 130 North Tryon Street, Charlotte, North Carolina. If you are unable to attend, you will be able to listen to the meeting and view our slide presentation over the Internet at http://investor.bankofamerica.com.
Enclosed are a notice of matters to be voted on at the meeting, our proxy statement, a proxy card and our 2008 Annual Report.
Whether or not you plan to attend, please submit a proxy to vote your shares in one of three ways: via Internet, telephone or mail. Instructions regarding Internet and telephone voting are included on the proxy card (or, if applicable, in your electronic delivery notice). If you choose to submit a proxy by mail, please mark, sign and date the proxy card and return it in the enclosed postage-paid envelope. You may revoke your proxy at any time before it is exercised as explained in the proxy statement.
If you plan to attend, please bring the admission ticket attached to your proxy card and photo identification. If your shares are held in the name of a broker or other nominee, please bring with you a letter (and a legal proxy if you wish to vote your shares) from the broker or nominee confirming your ownership as of the record date.
Kenneth D. Lewis
Chairman, Chief Executive Officer and President
BANK OF AMERICA CORPORATION
Bank of America Corporate Center
Charlotte, North Carolina 28255
NOTICE OF 2009 ANNUAL MEETING OF STOCKHOLDERS
Important Notice Regarding the Availability of Proxy Materials for the
Stockholder Meeting to be Held on April 29, 2009
The Proxy Statement and Annual Report to Stockholders
are available at http://investor.bankofamerica.com
Webcast of the Annual Meeting: You may listen to a live audiocast of the meeting on our website at http://investor.bankofamerica.com at 10:00 a.m., local time, on April 29, 2009.
Items of Business:
Record Date: You are entitled to notice of and to vote at the Annual Meeting (or any adjournment or postponement thereof) if you were a stockholder of record on March 4, 2009. In accordance with Delaware law, for 10 days prior to the Annual Meeting, a list of those registered stockholders entitled to vote at the Annual Meeting will be available for inspection in the office of the Corporate Secretary, Bank of America Corporation, Bank of America Plaza, 101 South Tryon Street, NC1-002-29-01, Charlotte, North Carolina 28255. The list also will be available at the Annual Meeting.
Proxy Voting: Your vote is important. Please submit your proxy as soon as possible via either the Internet, telephone or mail.
By order of the Board of Directors:
Alice A. Herald
Deputy General Counsel
and Corporate Secretary
March 18, 2009
TABLE OF CONTENTS
BANK OF AMERICA CORPORATION
Bank of America Corporate Center
Charlotte, North Carolina 28255
We are providing these proxy materials in connection with the solicitation of proxies by the Board of Directors of Bank of America Corporation for the 2009 Annual Meeting of Stockholders (the Annual Meeting). In this proxy statement, we refer to the Board of Directors as the Board and to Bank of America Corporation as we, us, our company, Bank of America or the Corporation. This proxy statement is being mailed starting on or about March 18, 2009.
Record Date. Only holders of record at the close of business on March 4, 2009 will be entitled to notice of and to vote at the Annual Meeting. Holders of the Corporations Common Stock (the Common Stock), the 7% Cumulative Redeemable Preferred Stock, Series B (the Series B Preferred Stock), the Floating Rate Non-Cumulative Preferred Stock, Series 1 (the Series 1 Preferred Stock), the Floating Rate Non-Cumulative Preferred Stock, Series 2 (the Series 2 Preferred Stock), the 6.375% Non-Cumulative Preferred Stock, Series 3 (the Series 3 Preferred Stock), the Floating Rate Non-Cumulative Preferred Stock, Series 4 (the Series 4 Preferred Stock), the Floating Rate Non-Cumulative Preferred Stock, Series 5 (the Series 5 Preferred Stock), the 6.70% Non-Cumulative Perpetual Preferred Stock, Series 6 (the Series 6 Preferred Stock), the 6.25% Non-Cumulative Perpetual Preferred Stock, Series 7 (the Series 7 Preferred Stock), and the 8.625% Non-Cumulative Preferred Stock, Series 8 (the Series 8 Preferred Stock), vote together without regard to class except as otherwise required by law.
As of the record date of March 4, 2009, there were 6,404,894,551 shares of Common Stock, 7,642 shares of the Series B Preferred Stock, 21,000 shares of the Series 1 Preferred Stock, 37,000 shares of the Series 2 Preferred Stock, 27,000 shares of the Series 3 Preferred Stock, 20,000 shares of the Series 4 Preferred Stock, 50,000 shares of the Series 5 Preferred Stock, 65,000 shares of the Series 6 Preferred Stock, 50,000 shares of the Series 7 Preferred Stock and 89,100 shares of the Series 8 Preferred Stock entitled to vote at the Annual Meeting. Each share of the Common Stock and Series B Preferred Stock is entitled to one vote. Each share of the Series 1-5 Preferred Stock and Series 8 Preferred Stock is entitled to 150 votes. Each share of the Series 6 and 7 Preferred Stock is entitled to five votes.
Voting By Proxy. Whether or not you plan to attend the Annual Meeting, you may submit a proxy to vote your shares via Internet, telephone or mail as more fully described below:
If you properly submit a proxy without giving specific voting instructions, your shares will be voted in accordance with the Boards recommendations as follows:
and AGAINST the stockholder proposals regarding:
If other matters properly come before the Annual Meeting, the persons appointed to vote the proxies will vote on such matters in accordance with their best judgment. Such persons also have discretionary authority to vote to adjourn the Annual Meeting, including for the purpose of soliciting proxies to vote in accordance with the Boards recommendations on any of the above items.
Revoking Your Proxy. You may revoke your proxy at any time before it is exercised by:
Cost of Proxy Solicitation. We will pay the cost of soliciting proxies. In addition to soliciting proxies by mail or electronic delivery, we also may use some of our associates, who will not be specially compensated, to solicit proxies, either personally or by telephone, facsimile or written or electronic mail. In addition, we have agreed to pay Georgeson Inc. $17,000 and Laurel Hill Advisory Group, LLC $17,500 plus expenses to assist us in soliciting proxies from banks, brokers and nominees. We also will reimburse banks, brokers and other nominees for their expenses in sending proxy materials to their customers who are beneficial owners.
Quorum Required to Hold the Annual Meeting. In order to hold the Annual Meeting, a quorum consisting of the holders of a majority of the aggregate voting power of the Common Stock and the Series B Preferred Stock, Series 1 Preferred Stock, Series 2 Preferred Stock, Series 3 Preferred Stock, Series 4 Preferred Stock, Series 5 Preferred Stock, Series 6 Preferred Stock, Series 7 Preferred Stock and Series 8 Preferred Stock must be present in person or represented by proxy at the Annual Meeting. For purposes of determining the presence or absence of a quorum, we intend to count as present shares present in person but not voting and shares for which we have received proxies but for which holders thereof have abstained. Furthermore, shares represented by proxies returned by a broker holding the shares in nominee or street name will be counted as present for purposes of determining whether a quorum is present, even if the shares are not entitled to be voted on matters where discretionary voting by the broker is not allowed (broker non-votes).
Majority Vote Standard for Election of Directors. In October 2006, the Board amended our Bylaws to provide that a nominee for director in an uncontested election shall be elected to the Board if the votes cast for such nominees election exceed the votes cast against his or her election. Abstentions from voting, as well as broker non-votes, if any, are not treated as votes cast and, therefore, will have no effect on the proposal to elect directors. In a contested election (a situation in which the number of nominees exceeds the number of directors to be elected), the standard for election of directors will be a plurality of the votes cast at the meeting.
If a nominee who is currently serving as a director is not elected at the Annual Meeting, under Delaware law the director will continue to serve on the Board as a holdover director. However, under our Corporate Governance Guidelines, any director who fails to be elected must offer to resign from the Board. The director whose resignation is under consideration will abstain from participating in any decision regarding that resignation. The Corporate Governance Committee and the Board may consider any factors they deem relevant in deciding whether to accept a directors resignation. The Board will publicly disclose its decision regarding the resignation within 90 days after results of the election are certified. If the resignation is not accepted, the director will continue to serve until the next annual meeting and until the directors successor is elected and qualified. If a nominee who is not
already serving as a director is not elected at the Annual Meeting, under Delaware law that nominee will not become a director and will not serve on the Board as a holdover director.
The Board will nominate for re-election only candidates who have tendered irrevocable resignations that will be effective upon: (i) the failure to receive the required vote at the next annual meeting at which they are nominated for re-election; and (ii) Board acceptance of such resignation. In addition, the Board will fill director vacancies and new directorships only with candidates who agree to tender, promptly following their appointment to the Board, the same form of irrevocable resignation.
Votes Required to Adopt Other Proposals. Approval of each of the other proposals requires the votes cast in favor of each such proposal to exceed the votes cast against such proposal. Abstentions from voting, as well as broker non-votes, if any, are not treated as votes cast and, therefore, will have no effect on any such proposal.
Voting by Associates. If you participate in The Bank of America 401(k) Plan, The Bank of America 401(k) Plan for Legacy Companies, the Countrywide Financial Corporation 401(k) Savings and Investment Plan, the Merrill Lynch & Co. Inc. Retirement Accumulation Plan, the Merrill Lynch & Co. Inc. Employee Stock Ownership Plan, the Merrill Lynch & Co. Inc. 401(k) Savings & Retirement Plan or the First Republic Bank Employee Stock Ownership Plan, and your plan account is invested in Bank of America Common Stock, you must provide voting instructions to the trustee of the plan (either via the proxy card or by Internet or telephone) in order for the shares represented by your investment to be voted as you instruct. If no voting instructions are received, the trustee of the plan will vote these shares in the same ratio as the shares for which voting instructions have been provided to the trustee. Your voting instructions will be held in strict confidence. If you participate in the Merrill Lynch Employee Stock Purchase Plan, your shares must be voted in order to count. The deadline to cast votes for shares held in the foregoing plans is April 28, 2009 at 8:00 a.m. EST. You will not be able to change your vote after this deadline.
Householding. Unless we have received contrary instructions, we send a single copy of the annual report, proxy statement and notice of annual or special meeting to any household at which two or more stockholders reside if we believe the stockholders are members of the same family. Each stockholder in the household will continue to receive a separate proxy card. This process, known as householding, reduces the volume of duplicate information received at your household and helps reduce our expenses.
If you would like to receive your own set of the annual report, proxy statement and notice of annual meeting this year or in future years, follow the instructions described below:
If your shares are registered in your own name, please contact our transfer agent and inform them of your request to revoke householding by calling them at 1.800.642.9855 or writing to them at Computershare Trust Company, N.A., P.O. Box 43078, Providence, Rhode Island 02940-3078. Within 30 days of your revocation, we will send to you individual documents.
If a bank, broker or other nominee holds your shares, please contact your bank, broker or other nominee directly.
If two or more stockholders residing in the same household individually receive copies of the annual report, proxy statement and notice of annual or special meeting and as a household wish to receive only one copy, you may contact our transfer agent at the address and telephone number listed in the preceding paragraph in the case of registered holders, or your bank, broker or other nominee directly if such bank, broker or other nominee holds your shares, and request that householding commence as soon as practicable.
Electronic Delivery. In addition to householding, we can also reduce our expenses if you elect to receive annual reports and proxy materials via the Internet. If you request, you can receive email notifications when these documents are available electronically on the Internet. If you have an account maintained in your name at Computershare Investor Services, you may sign up for this service at www.computershare.com/bac.
Questions. If you hold your shares directly, please call Computershare Trust Company at 1.800.642.9855. If your shares are held in street name, please contact the telephone number provided on your voting instruction form or contact your broker directly.
Rules of Conduct for the Annual Meeting
We anticipate significant stockholder attendance at the Annual Meeting. If you plan to attend, please bring the admission ticket attached to your proxy card and photo identification. If your shares are held in the name of a broker or other nominee, please bring with you a letter (and a legal proxy if you wish to vote your shares) from
the broker or nominee confirming your ownership as of the record date, which is March 4, 2009. Failure to bring such a letter may delay your ability to attend or prevent you from attending the meeting.
A number of stockholders have expressed an interest in speaking at the meeting. The Board appreciates the opportunity to hear the views of stockholders. In fairness to all stockholders and participants at the meeting, and in the interest of an orderly and constructive meeting, rules of conduct will be enforced. Copies of these rules will be available at the meeting. Only stockholders or their valid proxy holders may address the meeting. Depending on the number of stockholders who wish to speak, we cannot assure that every stockholder who wishes to speak will be able to do so for as long as they might want to hold the floor.
Only proposals that meet the requirements of Rule 14a-8 of the Securities Exchange Act of 1934 or our Bylaws will be eligible for consideration at the meeting. This year the only proposals that meet the criteria are those set forth in this proxy statement. Therefore, proposals raised at the meeting that are not identified in this proxy statement will not be considered during the Annual Meeting.
Stockholders may submit proposals and other matters for consideration at the 2010 Annual Meeting as described in Proposals for the 2010 Annual Meeting of Stockholders on page 58.
Commitment to Corporate Governance Best Practices
Bank of Americas business and affairs are managed by or under the direction of the Board. In its oversight of Bank of America, the Board sets the tone for the highest ethical standards and performance of our management, associates and the Corporation as a whole. The Board strongly believes that good corporate governance practices are important for successful business performance. Our corporate governance practices are designed to align the interests of the Board and management with those of our stockholders and to promote honesty and integrity throughout Bank of America. Over the past several years, we have enhanced our corporate governance practices in many important ways, and we continually seek out best practices to promote a high level of performance from the Board and management. The Board has adopted Corporate Governance Guidelines that embody long-standing practices of Bank of America as well as current corporate governance best practices. Highlights of our corporate governance practices are described below.
Additional Corporate Governance Information, Committee Charters and Code of Ethics
More corporate governance information about us can be found on our website at http://investor.bankofamerica.com under the heading Corporate Governance. Information available at this website includes our: (i) Certificate of Incorporation; (ii) Bylaws; (iii) Corporate Governance Guidelines (including the Related Person Transactions Policy); (iv) Code of Ethics; (v) charters of each of the committees of the Board; and (vi) Director Independence Categorical Standards. This information is also available in print free of charge upon written request addressed to: Bank of America Corporation, Attention: Shareholder Relations, 101 South Tryon Street, NC1-002-29-01, Charlotte, North Carolina 28255.
The Board of Directors
The basic responsibility of the Board is to oversee the businesses and affairs of Bank of America. Key responsibilities of the Board and its committees include:
Board Evaluation and Education
Each year, the Board and the Audit, Compensation and Benefits and Corporate Governance Committees evaluate their effectiveness. The Board views self-evaluation as an ongoing process designed to achieve high levels of Board and committee performance.
All new directors participate in our orientation program in their first year as a director. This orientation includes presentations by senior management to familiarize new directors with our management, lines of business, strategic plans, significant financial, accounting and risk management matters, compliance programs, conflict policies, Code of Ethics and other policies. Directors receive ongoing continuing education through educational sessions at meetings and periodic mailings between meetings. In addition, all but two of the non-management directors participated in a half-day session on risk management matters in 2008. The session was led by our Chief Risk Officer and Chief Financial Officer. Our Executive Officers, Chief Accounting Officer, General Auditor, certain line of business managers and senior risk and finance officers covered key risks by line of business, market risks, accounting matters and new product and new business governance. Our General Counsel was also in attendance at the session. The Board also encourages directors to participate in continuing education programs and reimburses directors for the expenses of such participation.
The Board is composed at all times of at least a majority of directors who are independent. As described below, the Board has determined that 16 of the Boards 18 director nominees, or approximately 89%, are independent directors. The Board has adopted categorical standards to assist it in making the annual affirmative determination of each directors independence status. These Director Independence Categorical Standards (Categorical Standards) are attached as Appendix A and posted on our website. A director will be considered independent if he or she meets the requirements of the Categorical Standards and the criteria for independence set forth from time to time in the listing standards of the New York Stock Exchange (NYSE).
The Board has evaluated the relationships between each current director (and his or her immediate family members and related interests) and Bank of America and its subsidiaries. The Board has affirmatively determined, upon the recommendation of the Corporate Governance Committee, that each of the following directors is independent under the Categorical Standards and the NYSE listing standards: William Barnet, III; Frank P. Bramble, Sr.; Virgis W. Colbert; John T. Collins; Gary L. Countryman; Tommy R. Franks; Monica C. Lozano; Walter E. Massey; Thomas J. May; Patricia E. Mitchell; Joseph W. Prueher; Charles O. Rossotti; Thomas M. Ryan; O. Temple Sloan, Jr.; Meredith R. Spangler; Robert L. Tillman; and Jackie M. Ward.
The Board has determined that Charles K. Gifford and Kenneth D. Lewis do not meet the independence standards. Mr. Lewis is our Chief Executive Officer. Mr. Gifford was employed by Bank of America or a predecessor and receives compensation from the Corporation which exceeds the threshold set forth in the Categorical Standards.
In making its independence determinations, the Board considered that in the ordinary course of business the Corporation and its subsidiaries may provide commercial and investment banking, financial advisory and other services to some of the independent directors, or members of the directors families, and to business organizations and individuals associated with them. The Board also considered that in the ordinary course of business some business organizations with which an independent director is, or members of the directors family are, associated may provide products and services to the Corporation and its subsidiaries. The Board has determined that, based on the information available to the Board, none of these relationships was material.
Board Attendance and Annual Meeting Policy
Directors are expected to attend our annual meeting of stockholders, regular and special meetings of the Board and meetings of the committees on which they serve. They are also expected to prepare for meetings in advance and to dedicate the time at each meeting as necessary to properly discharge their responsibilities. Informational materials, useful in preparing for meetings, are distributed in advance of each meeting. In 2008, there were thirteen meetings of the Board, and each of the directors attended at least 75% of the meetings of the Board and committees on which he or she served. In addition, all of the members of the Board, consistent with our policy, attended our 2008 Annual Meeting of Stockholders.
The Board also encourages directors to participate in board information sessions via telephone conference which were commenced by our management in 2008. During these sessions, which are conducted by our Chief Executive Officer, directors have access to and receive updates from, senior management on the Corporations financial condition and lines of business. A total of eight sessions were held in 2008 and included reviews of developing market conditions.
Independent Lead Director
Our Corporate Governance Guidelines provide that an independent Lead Director be elected annually for a one-year term. In 2006, Mr. Sloan was elected by the independent directors to serve as independent Lead Director, and has since been re-elected to serve for additional one-year terms through April 2009.
The independent Lead Directors duties, which the Board updated in 2008, include:
As independent Lead Director, Mr. Sloan regularly communicates with our Chief Executive Officer on a variety of issues including business strategy and succession planning.
The Board periodically considers its structure and the role and responsibilities of the independent Lead Director to reflect its commitment to corporate governance best practices.
Executive Sessions of the Board
Our non-management directors meet in executive session at each regular Board meeting. Our independent Lead Director chairs these executive sessions. In addition, if at any time the group of non-management directors includes directors who are not independent under the NYSE listing standards and our Categorical Standards, the independent directors will meet separately in executive session at least once a year.
Board Committee Membership and Meetings
During 2008, the Board had five standing committees: Asset Quality; Audit; Compensation and Benefits; Corporate Governance; and Executive. All of the members of the committees are nominated by the Corporate Governance Committee and appointed by the Board.
The table below provides membership information for each of the Boards committees.
2008/2009 Bank of America Committee Composition
In addition, the Board has made, subject to election of the director nominees by the stockholders at the Annual Meeting, the following committee assignments to be effective as of the Annual Meeting:
2009/2010 Bank of America Committee Composition
While each committee has its own charter and designated responsibilities, the committees act on behalf of the entire Board and regularly report on their activities to the entire Board. The committee charters are posted on our website and key information about each committee is described below.
Asset Quality Committee. The Asset Quality Committee currently consists of six directors. During 2008, the Committee held six meetings. Duties of the Asset Quality Committee include:
Audit Committee. The Audit Committee currently consists of six directors, all of whom are independent under the NYSE listing standards, the Categorical Standards and Securities and Exchange Commission (SEC) rules and regulations applicable to audit committees. The Board has determined that all six directors are financially literate in accordance with the NYSE listing standards and Mr. Barnet and Mr. May also qualify as audit committee financial experts under SEC rules. During 2008, the Audit Committee held ten meetings. Duties of the Audit Committee include the following:
Compensation and Benefits Committee. The Compensation and Benefits Committee currently consists of six directors, including our independent Lead Director, all of whom are independent under the NYSE listing standards and our Categorical Standards. During 2008, the Compensation and Benefits Committee held five meetings. Duties of the Committee include:
The Committee may create subcommittees with authority to act on the Committees behalf. The Committee has delegated to the Stock Plan Award Subcommittee (which consists of the chairman of the Committee) the Committees authority to make awards and determine the terms and conditions of stock options, stock appreciation rights and restricted stock awards (both shares and units) under the Bank of America Corporation 2003 Key Associate Stock Plan (the Key Associate Stock Plan) that was most recently approved by stockholders in December 2008. However, this delegation of authority does not extend to awards to our executive officers.
The Committee may delegate to management certain of its duties and responsibilities, including with respect to the adoption, amendment, modification or termination of benefit plans and with respect to the awards of stock options under certain stock plans. Significant delegations made by the Committee include the following:
The Committee actively engages in its duties and follows procedures intended to ensure excellence in the governance of our pay-for-performance philosophy:
The form and amount of compensation paid to our non-employee directors is reviewed from time to time by the Committee. Any changes to director compensation are recommended by the Committee to the Board for approval.
Our executive officers are generally not engaged directly with the Committee in setting the amount or form of executive officer or director compensation. However, as part of the annual performance review for our executive officers other than the Chief Executive Officer, the Committee considers the Chief Executive Officers perspective on each executive officers individual performance and compensation as well as the performance of our various business segments and lines of business. As discussed in the Compensation and Discussion Analysis beginning on page 21, in light of the extraordinary economic environment that evolved in 2008, year-end compensation decisions for all of our executive officers were made by the full Board, excluding Mr. Lewis, and were based, in part, on the recommendation of Mr. Lewis.
The Committee uses the services of a compensation consultant to assist it in performing its duties. The Committee has the sole authority and responsibility under its charter to approve the engagement of any compensation consultant. The consultant must have no relationship with us that would interfere with its ability to provide independent advice. The Committee reviews any relationships between management and the consultant, as well as the amount of work performed for us by the consultant in areas other than executive officer and director compensation. If the compensation consultant provides services to us other than in connection with the evaluation of director, chief executive officer or executive officer compensation and benefits, the Committee will approve the annual amount of aggregate fees permitted for such other services.
The Committee retained Frederic W. Cook & Company (Cook) for matters relating to 2008 executive and director compensation. Cooks business is limited to providing independent executive and director compensation consulting services to its clients. It does not provide any other management or human resources-related services. The Committee asked Cook to provide it with external market and performance comparisons and to advise it with respect to executive officer and Chief Executive Officer compensation. Towers Perrin, the Committees compensation consultant for 2007 executive compensation decisioning, provided the Committee with some preliminary analysis of 2008 executive compensation levels early in the year. Due to the extraordinary economic environment that evolved in 2008, that early analysis ultimately was not a factor in our 2008 compensation decisions.
Corporate Governance Committee. The Corporate Governance Committee currently consists of six directors, including our independent Lead Director, all of whom are independent under the NYSE listing standards and the Categorical Standards. During 2008, the Corporate Governance Committee held four meetings. Duties of the Corporate Governance Committee include:
Executive Committee. The Executive Committee currently consists of five directors, including our independent Lead Director. During 2008, the Executive Committee held six meetings although it has only one regularly scheduled meeting per year. The Executive Committee has the power to act on behalf of the Board between regular Board meetings. The Executive Committee reports its actions to the full Board at the next regular meeting.
Identifying and Evaluating Nominees for Director
The Corporate Governance Committee is responsible for evaluating candidates and recommending proposed director nominees to the Board. The Corporate Governance Committee will consider candidates proposed or suggested by Board members, management, third party search firms retained by the Corporate Governance Committee and stockholders. The Corporate Governance Committee follows the same process and uses the same criteria for evaluating candidates whether proposed by Board members, management, third party search firms or stockholders.
Our Corporate Governance Guidelines set forth the standards for evaluating candidates as director nominees. The Corporate Governance Committee and the Board consider the overall experience and expertise represented by the Board as well as the qualification of each candidate. Specifically, the standards for evaluating candidates are as follows:
In addition, a director who has reached the age of 72 will not be nominated for election to the Board. A director who changes his or her principal occupation shall offer to resign, and the Corporate Governance Committee, along with the Chairman of the Board, will determine whether to accept such resignation. Management directors will resign from the Board when they leave their executive officer positions.
Any stockholder recommending a candidate to be considered by the Corporate Governance Committee for nomination at an annual meeting of stockholders must submit the proposal in writing by no later than October 15th of the preceding year. The proposal must include the following:
Our Corporate Governance Guidelines provide that the Board shall nominate for election or re-election as directors only candidates who agree to tender, following the annual meeting at which they are elected or re-elected as directors, irrevocable resignations that will be effective upon: (i) the failure to receive the required vote at the next annual meeting at which they are nominated for re-election; and (ii) Board acceptance of such resignation. In addition, the Board shall fill director vacancies and new directorships only with candidates who agree to tender, promptly following their appointment to the Board, the same form of irrevocable resignation tendered by other directors in accordance with our Corporate Governance Guidelines.
Communications with the Board of Directors
The Board has established a process for stockholders and other interested parties to communicate with the Board, any director (including the independent Lead Director), non-management members of the Board as a group or any Board committee. Parties may send a letter to Bank of America Corporation, Attention: Corporate Secretary, 101 South Tryon Street, NC1-002-29-01, Charlotte, North Carolina 28255. For further information, refer to Contact the Board on our website.
Code of Ethics
The Board has adopted a Code of Ethics that applies to all of our directors, officers and associates, including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. The Code of Ethics embodies our commitment to the highest standards of ethical and professional conduct. All directors, officers and associates are required to annually certify that they have read and complied with the Code of Ethics. The Code of Ethics consists of basic standards of business practice as well as professional and personal conduct. We intend to post any amendments to the Code of Ethics, or waivers thereof (to the extent applicable to the Chief Executive Officer, Chief Financial Officer or Chief Accounting Officer), on our website.
Charitable Giving and Political Contributions
The Board annually reviews a report on our charitable giving and political contribution programs. Information regarding our policy on political contributions and activities can be found in our Corporate Political Contributions Policy Statement on our website.
Mr. Lewis is our sole employee director and he does not receive any compensation for his services as a director. We provide the following elements of annual compensation for our non-employee directors:
Non-employee directors who begin their Board service mid-year receive a pro-rata portion of the annual compensation.
The annual restricted stock award is provided under the Bank of America Corporation Directors Stock Plan (the Directors Stock Plan) and is subject to a one-year vesting requirement. The number of shares awarded equals the dollar value of the award divided by the closing price of our Common Stock on the grant date, rounded down to the next whole share, with cash payable for any fractional share.
Non-employee directors can elect to defer any or all of their compensation through the Bank of America Corporation Director Deferral Plan (the Director Deferral Plan). If a director elects to defer their annual restricted stock award, we credit a stock account with a number of whole and fractional stock units of equal value, with each stock unit having the same value as our Common Stock. These stock units are subject to the same one-year vesting requirement that applies under the Directors Stock Plan. Directors can choose to defer their annual cash award, as well as any independent Lead Director or committee chairman retainers, into the stock account or a cash account. We credit the stock account with dividend equivalents in the form of additional stock units and credit the cash account with interest at a long-term bond rate. Following retirement from the Board, a non-employee director receives the balances of his or her stock account (to the extent vested) and cash account in a single lump sum cash payment or in 5 or 10 annual cash installments per the directors prior election. Because stock units are not actual shares of our Common Stock, they do not have any voting rights.
The following table presents the compensation we paid, accrued or expensed with respect to our non-employee directors for their services in 2008:
This column does not include any such cash awards that were deferred under the Director Deferral Plan into a directors stock account. Those amounts are instead reflected in the 2008 Stock Awards column.
In consideration for his consulting services and other agreements, Mr. Gifford receives: (i) a $50,000 retainer for each of the first five years of the Retirement Agreement; (ii) use of company-provided aircraft for up to 120 hours per year for each of the first five years of the Retirement Agreement and up to 100 hours per year for any additional year the Retirement Agreement remains in effect thereafter; and (iii) office space (for as long as he requests) and secretarial support (for the first five years of the Retirement Agreement, renewable annually thereafter) that is both reasonable and appropriate in size and scope.
For 2008, the value of these benefits equaled the following: (i) $50,000 in consulting fees; (ii) $947,682 in aircraft usage (which is the amount paid to a third party vendor); and (iii) $225,031 in office and administrative support. In addition, we paid Mr. Gifford a tax gross-up in the amount of $281,307 related to his use of company-provided aircraft. We did this because in 2006 we began imputing income for personal use of company-provided aircraft using a third-party charter value, rather than the more common IRS-approved Standard Industry Fare Level (SIFL). By changing to the charter value, we made it more expensive for our executive officers to use company-provided aircraft for personal travel. However, this change also made the aircraft usage for Mr. Gifford more expensive, which was not the intent when the Retirement Agreement was originally entered into. The tax gross-up represents the difference in the taxes Mr. Gifford is required to pay using charter values versus what he would have had to pay had we continued using SIFL values.
Upon his retirement as an associate, Mr. Gifford became entitled to receive compensation as a non-employee director as more fully described above.
Stock Ownership Requirements for Directors. We have formal stock ownership requirements that apply to our non-employee directors. Under these requirements, each non-employee director is required to own and hold a minimum of 10,000 shares of our Common Stock. All full value shares beneficially owned are included in the calculation. New non-employee directors have up to five years to achieve compliance. All non-employee directors who have served on the Board for at least five years comply with our requirements. Non-employee directors cannot sell the restricted stock they receive as compensation (except as necessary to pay taxes upon vesting) until termination of their service.
ITEM 1: ELECTION OF DIRECTORS
The Board has nominated each of the following individuals for election at the Annual Meeting. Each director elected will serve until the next annual meeting of stockholders when his or her successor has been duly elected and qualified, or until the directors earlier resignation or removal. If any nominee is unable to stand for election for any reason, the persons appointed to vote the proxies may vote at the Annual Meeting for another person proposed by the Board, or the number of directors constituting the Board may be reduced. Pursuant to the Agreement and Plan of Merger, dated as of September 15, 2008, as amended, between Bank of America and Merrill Lynch & Co., Inc. (Merrill Lynch), we agreed to expand the Board and appoint three additional directors from among the directors serving on the Merrill Lynch board of directors immediately prior to the closing of the acquisition. As a result, in January 2009, the Corporate Governance Committee recommended the appointment of, and the Board appointed, the following former Merrill Lynch directors to the Board: Virgis W. Colbert; Retired Admiral Joseph W. Prueher; and Charles O. Rossotti.
Set forth below are each nominees name, principal occupation and five year business history.
The Board recommends a vote FOR all of the nominees listed below for election as directors (Item 1 on the proxy card).
As of December 31, 2008, we had two classes of voting securities, Common Stock and Series B Preferred Stock. Effective January 1, 2009 with the Merrill Lynch acquisition, eight additional classes of voting preferred stock were added. Our classes of voting securities are the Common stock, Series B Preferred Stock, Series 1 Preferred Stock, Series 2 Preferred Stock, Series 3 Preferred Stock, Series 4 Preferred Stock, Series 5 Preferred Stock, Series 6 Preferred Stock, Series 7 Preferred Stock and Series 8 Preferred Stock. As of February 9, 2009, we did not know of any person who beneficially owned 5% or more of the Common Stock or the Series 1-8 Preferred Stock (collectively, along with the Series B Preferred Stock, the Preferred Stock). The following table sets forth as of February 9, 2009, information regarding the sole holder known to us to beneficially own more than 5% of the Series B Preferred Stock.
The following table sets forth information as of February 9, 2009, with respect to the beneficial ownership of Common Stock by: (i) each director and nominee for director; (ii) each executive officer named in the Summary Compensation Table; and (iii) all directors, nominees and executive officers as a group. As of February 9, 2009, no director, nominee or executive officer of the Corporation owned any shares of the Preferred Stock other than as disclosed below.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and some of our officers to file reports with the SEC indicating their holdings of, and transactions in, our equity securities. Based solely on a review of the copies of such reports we received, and written representations from the reporting persons, we believe that, during 2008, our reporting persons complied with all Section 16(a) filing requirements, except that, due to an administrative error on the part of the Corporation, a late Form 4 was filed on behalf of Mr. Lewis to report the purchase of 86,000 shares of 8.20% Non-Cumulative Preferred Stock, Series H, and 3,714 restricted stock units were inadvertently omitted from a Form 3 filed on behalf of Mr. Rosato.
COMPENSATION AND BENEFITS COMMITTEE REPORT
The Compensation and Benefits Committee has reviewed and discussed with management the Compensation Discussion and Analysis that immediately follows this report. Based on this review and discussion, the Compensation and Benefits Committee has recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference into our Annual Report on Form 10-K for the year ended December 31, 2008.
The Corporation is participating in the Troubled Assets Relief Program (TARP) established by the United States Department of the Treasury under the Emergency Economic Stabilization Act of 2008.
As required by the TARP, the Compensation and Benefits Committee certifies that it has reviewed with our senior risk officers the TARP Senior Executive Officer incentive compensation arrangements for 2008 and has made rea-
sonable efforts to ensure that such arrangements do not encourage our TARP Senior Executive Officers to take unnecessary and excessive risks that threaten the value of our company. See Troubled Assets Relief Program (TARP) on page 25 for additional information concerning our TARP Senior Executive Officers.
Submitted by the Compensation and Benefits Committee of the Board:
O. Temple Sloan, Jr., Chairman*
Patricia E. Mitchell*
Thomas M. Ryan*
Meredith R. Spangler*
Gary L. Countryman**
Charles O. Rossotti**
*Member of the Committee throughout all of 2008 and through the February 26, 2009 Committee meeting at which this Report was approved, and involved in all deliberations and actions of the Committee during and with respect to 2008.
**Member of the Committee effective January 28, 2009. Accordingly, Messrs. Countryman and Rossotti did not participate in any deliberations or actions of the Committee before that date, including Committee actions with respect to compensation decisions for 2008 and the Committees review of the TARP Senior Executive Officer incentive compensation arrangements for 2008.
Although we were one of the few major financial institutions to be profitable for 2008, our results did not meet our expectations. Therefore, consistent with our pay-for-performance philosophy, Mr. Lewis recommended that no year-end compensation be paid to him or any other executive officer.
The Board of Directors reviewed our 2008 performance and after careful consideration of Mr. Lewis recommendation, ultimately concluded that no year-end cash or equity incentive compensation should be awarded to Mr. Lewis or any other executive officer for 2008, including the named executive officers whose compensation is set forth in the Summary Compensation Table on page 27.
Overview of 2008 Executive Compensation Program
We operate a large, global financial services business in a very competitive environment. There are many challenges inherent in running a business of our size and scope. To best meet these challenges, we have designed our executive compensation program to attract and retain the highest quality executive officers and directly link pay to our performance. This pay-for-performance philosophy results in a compensation program that aligns our executive officers interests with those of our stockholders, provides pay that varies depending on performance and can be easily understood by our stockholders.
The key compensation element for our executive officers is an opportunity to earn a year-end incentive award based on our performance. The Compensation and Benefits Committee may, in its discretion, provide this award in a mix of cash incentive, restricted stock and stock option awards. Historically, the Committee has delivered most of the year-end incentive award in a balanced mix of restricted stock and stock options because stock ownership is the simplest, most direct way to align our executive officers interests with those of our stockholders.
The Compensation and Benefits Committee determines these year-end incentive awards in the exercise of its informed discretion without formulas or weightings. The Committee places the greatest emphasis on company-wide financial performance, with a particular focus on operating earnings, operating earnings per share, total stockholder return and revenue as collectively the best indicators of our financial performance. The Committee gen- erally reviews growth in these measures over one-year and multi-year periods. The Committee may also consider the financial performance of individual lines of business and other factors such as quality and sustainability of earnings and successful implementation of strategic initiatives.
Our executive officers also receive base salary in order to have a level of predictable income. Base salary forms only a minor part of the total compensation opportunity. The Compensation and Benefits Committee establishes the base salary levels for our executive officers to reflect each executive officers scope of responsibility and accountability within the company and to be part of a competitive total compensation package.
Historically, the Compensation and Benefits Committee took into account compensation practices and financial performance at a group of leading U.S. financial services companies when deciding base salary levels and year-end compensation awards for our executive officers. Review of competitor compensation practices and financial performance is by necessity a backwards looking exercise, based on data from prior years. The extraordinary economic environment experienced in the financial services industry during 2008 caused such historic competitor data to become less relevant and was therefore not considered in making 2008 executive compensation decisions.
Prior to 2008, our practice was to establish a target total compensation package for each executive officer at the beginning of each year comprised of base salary and year-end cash incentive, restricted stock and stock option target awards. However, due to the extraordinary economic environment during 2008, the target total compensation packages established at the beginning of 2008 ultimately were not a factor in our 2008 compensation decisions.
Pay-for-Performance Features of Our Program
Our year-end compensation decisions over the last several years most clearly illustrate the direct linkage between our executive officers pay and our companys performance. For 2006, our company achieved good performance results, and accordingly the total compensation awards for our executive officers approximated target levels. For 2007, we awarded compensation for our executive officers significantly below target levels based on our performance. And as discussed more fully below, our executive officers received no year-end cash or equity compensation awards for 2008 as a result of our companys performance.
Many of our programs unique features further demonstrate the commitment to our pay-for-performance philosophy.
Conditions of Stock Ownership
Severance and SERPs
Option Grant Practices
Our 2008 Compensation Decisions
One of the Compensation and Benefits Committees primary responsibilities is to review our performance and approve the compensation of our executive officers, and subject to further approval by the Board, our Chief Executive Officers compensation. However, in light of the extraordinary economic environment that evolved during 2008, the 2008 year-end compensation decisions for all of the executive officers were made by the full Board, excluding Mr. Lewis. Salary and all other elements of compensation actually paid for 2008 and reflected in the Summary Compensation Table on page 27 were approved by the Compensation and Benefits Committee.
Our executive officers are not engaged directly with the Committee in setting the amount or form of executive officer compensation. However, as part of the annual performance review for our executive officers other than the Chief Executive Officer, the Committee considers the Chief Executive Officers perspective on each executive officers individual performance and compensation as well as the performance of our various business segments and lines of business.
The full Board, excluding Mr. Lewis, reviewed our financial performance for 2008. The Board also considered the recommendation of Mr. Lewis that no year-end compensation be awarded to him or any other executive officer.
Even with the exceptional challenges presented by the economic environment, we were one of the few major financial institutions to be profitable for 2008. We also made progress on a number of projects during 2008 that we expect will create value for our company in future years. We acquired both Countrywide and Merrill Lynch, in addition to completing a highly successful transition at LaSalle.
Regardless of our profitability and continued progress and growth, our performance for 2008 did not meet our expectations, including a loss for the fourth quarter.
Based on these results and Mr. Lewis recommendation, and given the pay-for-performance directive of our executive compensation program, the Board, after careful consideration and deliberation, ultimately determined that no year-end cash incentive, restricted stock or stock option awards should be awarded to Mr. Lewis or any other executive officer for 2008 performance.
The following chart shows the results of these compensation decisions:
Compensation Decisions For Performance Year 2008
The 2008 row in the Summary Compensation Table on page 27 shows amounts expensed in the financial statements during 2008 for restricted stock and stock option awards made for performance in 2005, 2006 and 2007. Therefore, none of the equity amounts in the Summary Compensation Table reflect compensation decisions for performance in 2008.
Our Other Compensation Practices
Other Elements of Compensation
The other elements of our executive compensation program are as follows:
Executive officers participate in our various employee benefit plans designed to provide retirement income. Our qualified and nonqualified pension plans provide a retirement income base, and our qualified and nonqualified 401(k) plans permit additional retirement savings. To encourage retirement savings under the qualified and nonqualified 401(k) plans, we provide an employer matching contribution.
We limit eligible compensation for earning benefits under the qualified and nonqualified pension plans and for employer matching contributions under the qualified and nonqualified 401(k) plans to the first $250,000 in annual cash compensation. As a result, the Compensation and Benefits Committees decisions to grant annual performance-based cash incentive, restricted stock and stock option awards do not create any additional retirement benefits earned under these plans.
Our executive officers do not earn additional retirement income under any SERPs. We believe that our executive officers should be able to provide for their retirement needs from the compensation they earn based on our performance.
For more information about these plans, see Pension Benefits and Nonqualified Deferred Compensation on pages 36 and 38 respectively.
Perquisites and Other Fringe Benefits
Our executive officers receive health and welfare benefits, such as group medical, group life and long-term disability coverage, under plans generally available to all other United States-based salaried associates. Consistent with our pay-for-performance philosophy, we provide very few executive fringe benefits. Because we have internal expertise on tax and financial planning matters, we make those services available at no cost to our executive officers for their personal tax and financial planning needs. We also provide our executive officers with secured parking and home security systems. Our executive officers have access to our corporate aircraft on a limited basis for personal travel pursuant to company guidelines.
Troubled Assets Relief Program (TARP)
We are participating in the Troubled Assets Relief Program (TARP) established by the United States Department of the Treasury (Treasury Department) under the Emergency Economic Stabilization Act of 2008.
TARP requires the Compensation and Benefits Committee to identify our senior executive officers and review their incentive compensation arrangements with our senior risk officers to ensure that the arrangements do not encourage the senior executive officers to take unnecessary and excessive risks that threaten the value of our company. Our named executive officers who were senior executive officers under TARP for 2008 were Mr. Lewis, Mr. Price, Ms. Desoer and Mr. McGee (collectively, the TARP Senior Executive Officers).
As required by TARP, the Compensation and Benefits Committee has certified that it has reviewed with our senior risk officers the TARP Senior Executive Officer incentive compensation arrangements for 2008 and has made reasonable efforts to ensure that such arrangements do not encourage our TARP Senior Executive Officers to take unnecessary and excessive risks that threaten the value of our company. See Compensation and Benefits Committee Report on page 20 for the Compensation and Benefits Committees certification.
Participation in TARP also requires certain limitations on executive compensation during the period that the Treasury Department holds a debt or equity interest in our company. The material features of these executive compensation limits applicable to the TARP Senior Executive Officers as of the printing of this proxy, are as follows:
On February 17, 2009, the American Recovery and Reinvestment Act of 2009, which includes additional restrictions on executive compensation applicable to companies participating in the TARP, was signed into law by President Obama. This law will provide further restrictions on the amount and type of compensation we pay to our executive officers and certain other highly compensated employees; however, the details of those restrictions will not be known until the Treasury Department proposes and finalizes regulations to effectuate the law.
In addition to the recoupment requirements described above as a result of our participation in TARP, if our Board or an appropriate Board committee has determined that any fraud or intentional misconduct by one or more executive officers caused us, directly or indirectly, to restate our financial statements, the Board or committee will take, in its sole discretion, such action as it deems necessary to remedy the misconduct and prevent its recurrence. The Board or committee may require reimbursement of any bonus or incentive compensation awarded to such officers or cancel unvested restricted stock or outstanding stock option awards previously granted to such officers in the amount by which such compensation exceeded any lower payment that would have been made based on the restated financial results.
Timing of Equity Grants
Awards of restricted stock and stock options to executive officers and other eligible key associates are made on a regular award date each year shortly after the end of the applicable performance year. This is the same date that we pay cash incentive awards for the performance year, and is scheduled to give us sufficient time to complete all performance reviews and obtain all necessary approvals. For the past few years, the award date has been February 15, or the immediately preceding business day if February 15 is not a business day.
We occasionally make awards of restricted stock or stock options other than on the regular annual award date, usually in connection with hiring a new key associate or awards under annual performance plans that follow a different timing cycle. We make these awards on the first day of the calendar month following approval, which for newly hired associates is on or after their actual hire date.
Formal approval for awards is obtained prior to the grant dates. We do not coordinate the timing of our awards with the release of material non-public information. The exercise price for the stock options equals the closing price of our Common Stock for the grant date.
Section 162(m) of the Internal Revenue Code limits the deductibility of compensation paid to certain executive officers in excess of $1,000,000, but excludes performance-based compensation from this limit.
Cash incentive compensation and restricted stock awards are provided under the stockholder-approved Executive Incentive Compensation Plan (EIC Plan). Under the EIC Plans compensation formula, participating executive officers may receive maximum deductible incentive compensation for a year up to 0.20% of our net income for that year. Under the EIC Plan, the Compensation and Benefits Committee can determine to make all or any portion of the annual incentive award in the form of a restricted stock award under our Key Associate Stock Plan.
In addition, compensation realized by our executive officers through the exercise of stock options should be fully deductible to us as performance-based compensation under Section 162(m).
TARP imposes additional requirements under Code Section 162(m). For certain covered executives for purposes of Code Section 162(m)(5), during the period that the Treasury Department holds a debt or equity interest in our company, we cannot deduct annual compensation for the covered executives in excess of $500,000. The performance-based exception does not apply to this TARP-related deduction limit.
Some compensation payable to our executive officers for 2008 exceeds the applicable Section 162(m) deduction limit. All compensation decisions for our executive officers are made with full consideration of the Internal Revenue Code Section 162(m) implications.
Summary Compensation Table. The following table shows compensation paid, accrued or expensed with respect to our named executive officers during the year indicated:
Summary Compensation Table (1)
The grant date fair value of restricted stock awards expensed in 2008 was based on the closing price of the Common Stock on the applicable grant date. The grant date fair value of stock option awards expensed in 2008 was determined based on the assumptions in the following chart:
The Change in Pension Value equals the change in the actuarial present value of all pension benefits from December 31, 2007 to December 31, 2008. For this purpose, in accordance with SEC rules, the present value was determined using the same assumptions applicable for valuing pension benefits for purposes of our financial statements. See Pension Benefits on page 36.
Consistent with our pay-for-performance philosophy, the named executive officers are not accruing significant additional pension benefits. This is because pension benefits accrue on no more than the first $250,000 of compensation.
The amounts listed above under Change in Pension Value for Mr. Lewis and Ms. Desoer result primarily because they have frozen annuity benefits under a prior supplemental executive retirement plan. These frozen
benefits are an annual annuity payment beginning at age 60 (or later for retirement after age 60). The amount of this annuity payment has been unchanged for each executive officer since the applicable freeze date. However, the lump sum value of the frozen annuity amount will increase each year based on the passage of time (i.e., the time-value of money) because the executive officer is one year closer to his retirement age when payment of the annuity is scheduled to commence. Under the MBNA SERP, Mr. Hammonds benefits are also expressed as an annuity beginning at age 60. However, the MBNA SERP does not provide for any actuarial increase in the amount of the annual annuity payments for retirement after age 60.
Certain of the amounts in this table are based on the incremental cost to us in providing the benefits, explained in more detail as follows:
The table does not include any amounts for personal benefits provided to our executive officers for which we believe there is no aggregate incremental cost to us, including use of corporate-owned or leased apartments.
The value of split-dollar coverage represents the economic value of premiums that have been paid by us for certain life insurance coverage for Mr. Lewis and his spouse, which premiums will be recovered by us in the future when the insurance policy matures. We have not paid any premiums for such coverage since 2001.
Under the terms of the MBNA Supplemental Executive Insurance Plan, we pay premiums on a whole life insurance policy owned by Mr. Hammonds as well as a related tax gross-up amount each year until 2018, when the last premium payment is due. The value of life insurance coverage represents the amount of premiums we paid during 2008 on Mr. Hammonds whole life insurance policy. The tax gross-up amount reflects the amount we paid to Mr. Hammonds in 2008 to cover the taxes he incurred as a result of the premium payment.
The relocation benefit for Ms. Desoer represents the costs we incurred in connection with Ms. Desoers relocation from Charlotte, North Carolina to Calabasas, California to lead our home loan and insurance services business. Those costs were comprised of $111,199 related to relocation costs including household goods shipment and storage, duplicate housing, house-hunting expenses, and other costs, $1,411,962 related to purchase of the new residence including mortgage subsidy and closing costs, and $1,097,659 tax gross-up on applicable amounts. In December 2008, an independent relocation company purchased Ms. Desoers former residence on our behalf based on the average of the appraised values of the residence as determined by two independent appraisal services. When the relocation company sells the residence to a third party, we will be responsible for additional costs associated with the sale customarily paid by the seller and any loss on sale.
The amount in the Other column for Mr. Hammonds represents a $6,800,000 payment accrued in 2008 and paid in January 2009 in consideration for the cancellation of the retention agreement previously entered into between Mr. Hammonds and Bank of America following the merger of MBNA and Bank of America.
Grants of Plan-Based Awards. The following table shows additional information regarding: (i) the target level of annual cash incentive awards for our named executive officers for performance during 2008, as established by the Compensation and Benefits Committee during 2008; and (ii) restricted stock and stock option awards granted in February 2008 that were awarded for performance during 2007. No restricted stock or stock option awards were granted in February 2009 for performance during 2008. In addition, no annual cash incentive award was received by the executive officers for performance during 2008, which is reflected in the Summary Compensation Table.
Grants of Plan-Based Awards
The Compensation and Benefits Committee delivers the aggregate amount of the annual cash incentive award and the annual restricted stock award under the terms of the stockholder-approved EIC Plan. Under this plan, our stockholders have authorized an award of up to 0.20% of our net income each year for each executive officer. This award may be delivered in any combination of cash or restricted stock as the Committee determines. This stockholder approved formula acts as a maximum amount of compensation that can be delivered to our executive officers as annual cash incentives and restricted stock awards. Under the plan, though, the Committee can determine to award any amount below the maximum. As described in the Compensation Disclosure and Analysis, the Board determined that no year-end cash incentive, restricted stock or stock option awards should be awarded to Mr. Lewis or his direct reports for performance in 2008.
The following describes the material terms of the restricted stock awards granted to our executive officers in February 2008 for their performance in 2007:
The following chart shows the impact on vesting in case of termination of employment before the vesting date:
The following describes the material terms of stock option awards granted to our executive officers in February 2008 for their performance in 2007:
The following chart shows the impact on vesting and exercise period in case of termination of employment:
Mr. Hammonds was not an executive officer in February 2008, and his equity awards received at that time for performance during 2007 instead follow the provisions generally applicable to senior management associates who are not executive officers. These provisions are similar to those applicable to our executive officers, but have a few differences including:
Equity Exercised or Vested and Year-End Equity Values. The following tables show information regarding the value of options exercised and restricted stock vested during 2008 and certain information about unexercised options and unvested restricted stock at December 31, 2008.
Options Exercised and Stock Vested
Outstanding Equity Awards as of December 31, 2008
Pension Benefits. The following table provides information regarding the actuarial present value of each named executive officers accumulated benefits under the pension plans in which the named executive officer participates. For this purpose, in accordance with SEC rules, the present value was determined using the same assumptions applicable for valuing pension benefits for purposes of our financial statements. See Note 16 to the Notes of Consolidated Financial Statements for the 2008 fiscal year included in our Form 10-K filed on February 27, 2009.
The following describes the material features of the pension plans presented in the table.
Qualified Pension Plans. We sponsor The Bank of America Pension Plan (the Bank of America Pension Plan), a tax-qualified cash balance pension plan which is available to nearly all of our associates (subject to certain minimum service requirements), other than associates who are covered by The Bank of America Pension Plan for Legacy MBNA (the Legacy MBNA Pension Plan), or certain other pension plans for legacy organizations. The named executive officers participate in the Bank of America Pension Plan, other than Mr. Hammonds, who participates in the Legacy MBNA Pension Plan.
The Bank of America Pension Plan generally expresses benefits as a hypothetical cash balance account established in each participants name. A participants account receives two forms of credits: compensation credits and investment/interest credits.
Compensation credits equal a percentage of a participants compensation. Compensation for this purpose includes both salary and bonus. Compensation for this purpose is subject to the compensation limit applicable to tax-qualified plans ($230,000 for 2008). The applicable compensation credit percentage ranges from 2% to 6% under the Bank of America Pension Plan and is based on a schedule that depends on years of service and age measured at certain points in time.
The amount of investment/interest credits under the Bank of America Pension Plan depend on when the related compensation credits were made. Compensation credits made before 2008 receive investment credits based on the performance of certain hypothetical investment measures selected by the participant from a menu of invest-
ment measures, which correspond to the investment funds available under The Bank of America 401(k) Plan. Compensation credits made after 2007 receive interest credits equal to the yield on a 10-year U.S. T-constant maturities.
At termination of employment after having completed at least three years of service, a participant is eligible to receive the amount then credited to the participants cash balance account in an actuarially equivalent joint and survivor annuity (if married) or single life annuity (if not married). The participant may also choose from other optional forms of benefit, including a lump sum payment in the amount of the cash balance account.
The plan also includes certain protected minimum benefits, some of which relate to pension formulas from prior pension plans that have merged into the plan and some of which relate to the conversion to a cash balance form of plan. One of these protected minimum benefits guarantees that the cash balance account will not be less than the opening cash balance account at conversion plus subsequent compensation credits.
Benefits under the Legacy MBNA Pension Plan are calculated based on average annual compensation, which includes salary, but not bonuses, and may not exceed the compensation limit applicable to tax-qualified plans ($230,000 for 2008). Annual benefits at age 65, the normal retirement age under the Legacy MBNA Pension Plan, are 1.3% of final average compensation times years of credited service plus 0.5% of final average compensation above Social Security Covered Compensation times years of credited service. Final average compensation is the participants base pay for the five consecutive years during the participants last ten years of pension plan participation in which the participants base pay was highest. Social Security Covered Compensation is the 35-year average of amounts with respect to which Social Security taxes must be paid. Benefits payable under the Legacy MBNA Pension Plan are not subject to deductions for Social Security and other offset amounts. Participants who have attained at least age 50 with at least 15 years of service can retire and commence benefits before age 65, subject to reduction in the amount of the benefits to reflect early commencement. Retirement benefits are payable as a joint and survivor annuity (if married) or single life annuity (if not married). The participant may also choose from other optional annuity forms of benefit.
Pension Restoration Plan. The named executive officers other than Mr. Hammonds participate in the Bank of America Pension Restoration Plan (the Pension Restoration Plan). Mr. Hammonds does not participate in a comparable plan.
The Pension Restoration Plan is a nonqualified deferred compensation plan that provides make up benefits for participants in the Bank of America Pension Plan whose plan benefits are reduced due to limits applicable to tax-qualified plans or due to participation in other nonqualified deferred compensation plans. However, since 2005, no benefits are accrued on a combined basis under the Bank of America Pension Plan and the Pension Restoration Plan, on any compensation for the year in excess of $250,000.
At termination of employment after having completed at least three years of service, a participant is eligible to receive the amount then credited to the participants Pension Restoration Plan. As part of a design change to satisfy new federal tax laws affecting nonqualified deferred compensation plans, participants in the Pension Restoration Plan were given a one-time opportunity during 2006 to elect the form of payment as either a lump sum or annual installments over a period of up to 10 years, and were also allowed to elect the timing of payment to be either the year following termination of employment or any later year, not to exceed the year in which the participant reaches age 75. Pension Restoration Plan participants may change their payment elections in limited circumstances.
Frozen SERP. Mr. Lewis and Ms. Desoer participate in the Bank of America SERP. Consistent with our pay-for-performance philosophy, the Bank of America SERP was frozen effective December 31, 2002. As a result, no further benefits accrue under either the Bank of America SERP for either named executive officer.
Prior to being frozen, the SERP provided a target retirement benefit expressed as a percentage of final average compensation, offset by benefits from the applicable tax-qualified pension plan and pension restoration plan and offset by Social Security. The frozen SERP benefits are expressed as an annual joint and 75% survivor annuity commencing at age 60.
The frozen annuity benefit is actuarially reduced for commencement prior to age 60 or actuarially increased for commencement after age 60. Actuarially equivalent lump sum and installment payment options may also be elect-
ed. Actuarial equivalency is based on the actuarial assumptions that were in effect under the Bank of America Pension Plan for 2002, the year that SERP was frozen.
MBNA SERP. Prior to his retirement on December 31, 2008, Mr. Hammonds participated in the MBNA SERP, which had been in place for a number of years prior to our acquisition of MBNA. The MBNA SERP provides a retirement benefit payable as an annuity for Mr. Hammonds life following retirement equal to 80% of Mr. Hammonds highest average salary for any 12-month period during the 144 months preceding retirement, capped at $2,500,000. Mr. Hammonds did not accrue any additional retirement benefit under the MBNA SERP during 2008 because he had already reached the maximum retirement benefit under the plan as of the closing of our acquisition of MBNA. Benefits are reduced by pension and Social Security benefits. The MBNA SERP also provides for salary continuation in the event of death. In the case of death after retirement, Mr. Hammonds surviving spouse would receive 100% of his retirement benefit for 10 years following his retirement and 50% thereafter for life.
Nonqualified Deferred Compensation. The following table shows information about the participation by each named executive officer in our nonqualified deferred compensation plans:
The following describes the material features of our nonqualified deferred compensation plans in which the named executive officers participate.
401(k) Restoration Plan. The named executive officers participate in the Bank of America 401(k) Restoration Plan (the 401(k) Restoration Plan). For 2008, the 401(k) Restoration Plan is available to our associates with annual cash compensation of $150,000 or more. The 401(k) Restoration Plan is a nonqualified retirement savings plan that provides make up benefits for participants in The Bank of America 401(k) Plan or The Bank of America 401(k) Plan for Legacy Companies (the 401(k) Plans) whose contributions are adversely affected due to limits applicable to tax-qualified plans.
Under the plan, participants may defer up to 30% of base salary after reaching the 401(k) Plans limits and up to 90% of commissions and most cash incentives. Participants who have completed at least 12 months of service are also eligible for a matching contribution. We match 100% of the first 5% of participant deferrals. However, no matching contributions are made on a combined basis under the 401(k) Plans and the 401(k) Restoration Plan on any compensation for the year in excess of $250,000, resulting in a maximum matching contribution on a combined basis of $12,500.
Accounts under the 401(k) Restoration Plan are adjusted for investment gains and losses based on the performance of certain hypothetical investment choices selected by the participant. These investment choices are the same investment choices available under the 401(k) Plans. Participants may change their investment elections at any time under the same rules that apply under the 401(k) Plans.
When participants make their deferral elections for a year, they also elect how those deferrals will ultimately be paid. Participants may elect a lump sum or installments of up to 10 years, and the timing may be the year following termination of employment or any other year, before or after termination of employment, as specified by the participant, but not beyond the year the participant turns age 75. As a result, planned in-service distributions are available. A separate distribution election is made for matching contributions, but payment for these amounts cannot begin before termination of employment. Changes to payment elections are permitted in limited circumstances. Participants may also request unplanned in-service distributions in limited emergency situations.
Deferred Compensation Plan. Mr. Lewis also participates in the NationsBank Corporation and Designated Subsidiaries Deferred Compensation Plan for Key Employees (the Deferred Compensation Plan) which was established as of November 1, 1985. Mr. Lewis deferred compensation under the Deferred Compensation Plan during the period from 1985 through 1989, but no compensation has been deferred by him under the Deferred Compensation Plan since 1989.
Under the Deferred Compensation Plan, a participant receives his prior deferrals, along with interest, following his termination of employment. The annual rate of interest depends on the participants age and years of service at termination and will be approximately 13% (in the case of normal retirement or special early retirement), 11% (in the case of regular early retirement) or 8% (in the case of termination prior to regular early retirement). For these purposes, normal retirement means termination of employment following attainment of age 62, special early retirement means termination of employment following attainment of age 55 with 20 years of service; and regular early retirement means termination of employment following attainment of age 50 with 15 years of service. In addition, the designated beneficiary of a participant who dies while in service receives a benefit equal to the participants regular early retirement benefit (or the participants special early retirement benefit or normal retirement benefit to which the participant may have been entitled at the time of death). As a result, the designated beneficiary of a participant who dies prior to eligibility for regular early retirement may, in effect, receive a return on the participants deferrals that is greater than an 11% annual rate.
Payments under the Deferred Compensation Plan are generally made over a period of 15 years following retirement or death, but they are made in a single payment following termination of employment before eligibility for regular early retirement. Participants may also request unplanned in-service distributions in limited emergency situations.
Retention Account for Mr. Hammonds. We established a retention account under a retention agreement that became effective on January 1, 2006 at the closing of our acquisition of the MBNA Corporation for Mr. Hammonds. The retention account, which is fully vested, is credited with interest at the prior months One-Year Constant Maturity Treasury rate as determined each month by the Federal Reserve. Mr. Hammonds account was payable 50% on the first anniversary of the merger and the remainder on the second anniversary of the merger.
MBNA Corporation Executive Deferred Compensation Plan. Mr. Hammonds also participates in the MBNA Corporation Executive Deferred Compensation Plan (the MBNA Deferred Compensation Plan), which is a nonqualified retirement savings plan intended to provide eligible associates with the ability to defer receipt of certain types of compensation. No deferrals have been permitted under this plan since 2006. Mr. Hammonds year-end balance in the plan relates to certain deferrals from 1990 and certain company contributions made prior to 2005.
Accounts under the MBNA Deferred Compensation Plan are adjusted for investment gains and losses based on the performance of certain hypothetical investment choices selected by the participant. Participants may change their investment elections on a monthly basis.
When participants make their deferral elections for a year, they also elect how those deferrals will ultimately be paid. Participants may elect a lump sum or installments of up to 10 years to be paid at the time specified by the participant, which may not be sooner than the earlier of two years following the date of deferral and the participants termination of employment. As a result, planned in-service distributions are available. However, notwithstanding any election to the contrary, if the participant terminates employment for any reason other than death, disability or retirement, the value of the participants account is paid in a lump sum as soon as administratively possible following the participants termination of employment. Participants may also request unplanned in-service distributions in limited emergency situations. Changes to payment elections are not permitted.
For years prior to January 1, 2005, certain automatic contributions were also made to the MBNA Deferred Compensation Plan. These automatic contributions are adjusted for investment gains and losses in the same manner as deferrals described above. The automatic contributions are distributed in substantially equal annual installments over a period of 10 years beginning after the participants termination of employment unless the total value of such contributions, as adjusted for investment gains and losses, is $50,000 or less, in which case such automatic contributions are paid in a lump sum following termination.
1999 Restricted Stock Grant to Mr. Lewis. We granted Mr. Lewis an award of 600,000 restricted stock units on July 1, 1999 which became vested on July 1, 2004. Under the terms of this award, the units are payable commencing on or about January 31 of the year following the year Mr. Lewis terminates employment with us. The units are payable in the form of shares of our Common Stock, with one share payable for each unit. Mr. Lewis may elect at any time up to 12 months before his employment termination date to have the units paid in a single payment or annual installments over five or ten years. Until the units are paid, Mr. Lewis receives cash dividend equivalents at the same time and in the same amount as if the units were issued and outstanding shares of our Common Stock.
Post-Employment Benefits. None of our executive officers have employment, severance or change in control agreements with us. Consequently, none of our executive officers have any right to cash severance of any kind under any circumstances. In addition, under our policy regarding executive severance agreements, we will not enter into employment or severance agreements with our executive officers that provide severance benefits exceeding two times base salary and bonus, unless the agreement has been approved by our stockholders. Finally, due to our participation in the Troubled Assets Relief Program (TARP), we are prohibited from paying any severance benefits to our TARP Senior Executive Officers during the period that the Treasury Department holds a debt or equity interest in our company.
Our restricted stock and stock option awards include standard provisions that result in the vesting or forfeiture of awards upon termination of employment, depending on the reason for termination. For awards granted in 2006 or later, the awards include provisions that may permit the continued vesting of the award per the original vesting schedule if the executive does not go to work for a named competitor during the original vesting period and annually provides us with a written certification that he or she is in compliance with this requirement. This provision applies if the associate meets the Rule of 60 at the date of termination. Rule of 60 is met when an associate has at least 10 years of vesting service under the pension plan in which he or she participates and his or her age and years of service add up to at least 60. Currently, each of the named executive officers meets the Rule of 60.
The following chart shows the value of restricted stock and stock option awards that would have become vested or forfeited, or that could have continued to vest subject to the non-compete requirement, for a termination of employment as of December 31, 2008. For this purpose, restricted stock awards were valued at our closing price as of December 31, 2008, and stock options were valued as the difference between our closing price as of that date and the applicable exercise price of the stock options. On this basis, as of December 31, 2008 all of the unvested stock options had a value of $0.