ABN Amro pay deal

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ABN Amro will hold its senior board members to a promise to double profits over the next four years by paying the bulk of their compensation in stock.

The Dutch bank's 10 board members, including new broom chairman Rijkman Groenink, will receive up to 70% of their annual bonus payments in shares.

The arrangement, while common among Anglo-Saxon companies, is a sharp departure from continental European practice. However, it is in line with similar proposals to increase employee share ownership at Deutsche Bank.

Hugh Scott-Barrett, one of four ABN Amro board members responsible for wholesale banking, said: 'The lion's share of board members' compensation will be paid in stock, which is quite a radical departure for an organisation like ours.' Board members will not be the only employees to receive a higher percentage of their compensation in bank shares.

Scott-Barrett said: 'Increasing the amount of stock owned by staff is absolutely fundamental to our strategy of aligning shareholder and employee interests.'

About 100 group managing directors participate in a restricted share option scheme. A further 400 have discounted stock as an element of their bonus payments.

Staff can put a ceiling on the percentage of compensation paid in ABN Amro shares at 50%, although the average take-up was closer to 80% last year.

Next year, the bank intends to extend the option programme to directors and double the number of employees paid in stock.

The change in pay culture is one of several measures designed to propel ABN Amro managers to transform the bank's financial performance.

The bank last week set as its primary financial target to deliver a total return to shareholders that consistently places it in the top five of a series of 20 global wholesale banks.

That would require ABN Amro to double the value of its stock in four years, achieve an average return on equity of over 25% and average earnings-per-share growth of 17%.

The wholesale banking unit, where a higher percentage of staff receive compensation in the form of bonus payments, has by far the most aggressive target for profit growth.

The division is expected to increase net profit by 139% and to grow economic profit by 369%. ABN Amro expects wholesale banking to rise from 20% of group economic profits in 2000 to 37% in 2004.

An investment in ABN Amro shares would not historically have produced the kinds of stellar returns associated with holding stock in Goldman Sachs or Morgan Stanley Dean Witter.

ABN Amro common shares were trading at €20.75 at the market's close on Friday, off its 52-week high of €26.50 in late August but only slightly above its low of €19.38 two weeks earlier. Its one-year return was a negative 14.93%.

However, a growing number of equity analysts see the bank's stock as undervalued.