Lincoln changes executive pay after throwing off TARP

Read the latest regulatory filing from Lincoln National Corp. too quickly and you might think the senior management is getting a pay cut.

The compensation committee of the board of Lincoln National met Aug. 11 to “restructure” the compensation of Dennis R. Glass, its chief executive officer, and three other executives.

Indeed, the committee reduced cash salaries for the four men by a total of $446,187 as of Saturday, according to a filing with the Securities and Exchange Commission. Glass’ base salary was trimmed to $1,025,000 from $1,150,000.

But one clue that this isn’t simply a pay cut appears in a line that says the compensation committee eliminated the payment of “salary shares” going forward.

I’d heard of restricted stock units, nonqualified stock options, and performance shares, but salary shares were a new one for me. Salary shares are salary paid out as a type of equity compensation. Unlike cash, an executive must hold onto salary shares for a period of time, usually two years or more.

In November, Lincoln National’s compensation committee, following the advice of outside consultant Towers Perrin, decided to pay its senior management using salary shares, not to align pay with performance, but in reaction to federal restrictions.

You see, the Radnor insurer had sought capital from the Treasury Department’s Troubled Asset Relief Program at a time when it and other large insurers were in a cash bind after losses on their investments in 2008. Lincoln sold $950 million of preferred shares July 10, 2009, to the U.S. Treasury - the final piece of an effort to raise $2.1 billion in fresh capital.

Getting federal dough meant the insurer now faced restrictions on the payment of incentive compensation. Given that more than two-thirds of Lincoln senior executives’ pay came from incentive plans, that meant the company either had to slash pay or find another way to play by the federal rules.

Hence, the salary-shares strategy, which has been adopted by other large financial institutions, such as SunTrust Banks Inc. and Wells Fargo & Co. Lincoln’s compensation committee increased Glass’ cash base salary to $1.15 million from $1 million, approved the payment of about $3.1 million in salary shares, and gave him a restricted-stock-unit award of 77,305 shares.

However, like other TARP recipients, Lincoln was eager to pay back the government. On June 30, Lincoln repurchased the $950 million in preferred stock from the Treasury Department, freeing itself from the pay restrictions.

Six weeks later, Lincoln’s compensation committee went to work undoing what it did in November. Gone are the salary shares. Cash salaries got rolled back.

But the committee also adopted a “special incentive program” that will encompass the period from July 1 to Dec. 31.

Should Glass and three other executives receive the minimum award under that incentive plan, Lincoln would pay out a total of $420,329. However, under the maximum award, those executives stand to receive a collective $3.36 million, including a possible $1.58 million for Glass alone.

Will the changes lead to higher pay for Lincoln management? We’ll have to wait until next year for the new proxy statement.