WaMu leaders to profit even if stock stays low

Investors in Washington Mutual watched helplessly last year as the big lender's stock tumbled more than 70 percent. But the executives who ran WaMu during that epic slide are poised to profit even if the shares regain only part of their lost value.

And several will still take home six-figure bonuses for their work last year, including $912,800 for Chief Operating Officer Stephen Rotella, Seattle-based WaMu said in a regulatory filing Tuesday.

The company gave Chief Executive Kerry Killinger a new grant of options on 3.2 million shares, while Rotella got 1.5 million options. Chief Financial Officer Thomas Casey and retail-banking head James Corcoran got smaller option grants.

The options will vest, or become exercisable, depending on when WaMu's share price crosses certain thresholds.

Half of Killinger's and Rotella's options, for instance, vest in three years or when WaMu shares close above $26, whichever is later. The rest vest in four years or when the shares close above $35.

If WaMu is sold, however, all of the options will vest immediately. Speculation that WaMu is on the block has run rampant, helping push the stock up 19.7 percent in the past two weeks.

Killinger and Rotella own 1.5 million and 382,000 WaMu shares, respectively, according to their most recent disclosure forms. In Tuesday's filing, WaMu said the option grants were intended to give the two men "a strong incentive to restore shareholder value."

That rationale was condemned as "outrageous" by Fred Whittlesey of Compensation Venture Group, a Seattle-based executive-compensation consulting firm.

"All shareholders should hit the roof when they see what they've done here," said Whittlesey, himself a WaMu stockholder. "They've created another layer of poor compensation policy on top of the existing poor compensation policy."

Rather than setting the options' strike price at Tuesday's closing price of $14.77, Whittlesey said, WaMu's board should have set it at $40 — the stock's approximate price before last year's swoon.

"One of the things you don't do with stock options is give them to people who drove the shares down so they can profit by bringing them back up," he said.

Last week, while discussing WaMu's $1.87 billion fourth-quarter loss and first annual loss since 1984, Killinger said he wouldn't accept a cash bonus for 2007 and that other top leaders would receive reduced bonuses.

In Tuesday's filing, WaMu also disclosed that its poor operating performance in 2007 meant executives received only 32.6 percent of their target bonuses. But Casey will still take home $391,200 above his base pay, and Corcoran, $277,100.

Though Killinger will forgo a nearly $1.2 million bonus, it still will be included in calculating his retirement benefit.

In addition, the four men forfeited 67.4 percent of the restricted stock they received last year, the filing said. However, Rotella, Casey and Corcoran got new restricted stock — 165,000, 85,000 and 42,000 shares, respectively — which the company said was meant as a retention incentive.

"They [WaMu's compensation committee] are worried about keeping these guys," Whittlesey said.

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com