(CN) - FirstMerit Corp. paid millions in bonuses to its executive officers in 2011 while shareholders suffered "staggering losses," and the company took no action even when shareholders voted against the "pay-for-underperformance" compensation scheme in its 2012 proxy, shareholders claim in a derivative action.
Ryan Smalley filed a derivative suit against FirstMerit Corporation, and 16 of its corporate officers in the Northern District of Ohio.
FirstMerit is an Ohio-based bank with 205 offices in Ohio, Pennsylvania and Chicago.
According to the complaint, "The Board has historically represented to FirstMerit shareholders that the Company's executive compensation practices are firmly rooted in a pay-for-performance philosophy. Specifically, the Board has represented that the Company's executive compensation program is designed to link pay with the creation of shareholder value. For example, in describing the key feature of the Company's annual cash incentive awards program, the 2012 Proxy states that the program 'rewards executives for achieving strategic and financial performance metrics that help create long-term shareholder value.'" (Emphasis in original.)
However, Smalley claims that FirstMerit consistently rewards its executives with millions in cash bonuses and stock grants regardless of its annual performance.
"FirstMerit's shareholders suffered staggering losses in their investments during the Company's 2011 fiscal year. During the 2011 fiscal year, the Company's stock price decreased from an opening price of $20.00 per share on January 3, 2011 to a closing price of $15.13 per share on December 30, 2011. FirstMerit suffered a 20.03 percent decrease in total shareholder return for the 2011 fiscal year," the complaint states.
In 2011, FirstMerit's corporate officers received over $2.6 million in cash bonuses, and stock grants with a value of more than $3.3 million, according to the complaint.
Furthermore, from "a more long-term perspective, FirstMerit's performance has consistently failed to increase shareholder value. FirstMerit's total shareholder return has decreased 15.58 percent during the past 3 years, 19.42 percent during the past 5 years, and 11.30 percent during the past 10 years," Smalley claims. "Fortunately for the Company's shareholders, the Dodd-Frank Act gave them a voice to express their dissatisfaction with the Board's 'pay-for- underperformance' compensation scheme. In the 2012 Proxy, the Board recommended that the shareholders vote 'for' approval of the 2011 executive compensation. At the say-on-pay vote on April 18, 2012, despite the Board's recommendation, FirstMerit's shareholders rejected the Company's 2011 executive compensation. Specifically, of the 89,437,802 votes cast, 48,276,630, or nearly 54%, voted against FirstMerit's executive compensation."
Despite the negative shareholder vote, "the Board has not publicly rescinded or otherwise modified the 2011 executive compensation, thus substantially harming the Company and its shareholders," Smalley claims.
Smalley wants FirstMerit's executives to return their 2011 bonuses, and to implement a new system of internal controls to prevent the payment of excessive compensation to FirstMerit's top officers.
He is represented by Jack Landskroner and Drew Legando of Landskroner, Grieco, Merriman in Cleveland, and Scott Holleman and Eduard Korsinsky of Levi & Korsinsky in New York.