January 29, 2010
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News: Capital One's Fairbank Gets No Salary
At the same time American Express announces a huge raise for it leader, Capital One Financial Corp (COF) releases details on the compensation package for its Chief Executive Officer, Richard Fairbank. According to the credit card company's filing, Fairbank will not receive any salary; however, he will receive a stock based bonus worth an estimated $9.5 million and stock options. Fairbank was given 266,759 shares of the credit card company's stock which he founded in 1988. The shares are split between performances and restricted stock units. Additionally, Fairbank will receive stock options to buy up to 559,333 shares of the credit card company over a three year period.
Depending on how well the bank performs over the next few years, Fairbank's 177,840 shares of performance units could be worth nearly $6.5 million. However, if things don't go well financially for the credit card company, Fairbank could potentially come out with very little and certainly less than any of his peers. Additionally, Fairbank will also receive 88,919 of restricted stock that could reach nearly $3.25 million at the discretion of the credit card company's independent board members. The compensation package also includes an option whereas Fairbank can purchase 559,333 shares of the company within a nine year period that will expire on January 26, 2020. Fairbank has not received any cash bonus or salary since 1997.
Capital One recently reported better than expected 4th quarter results; however, earnings did not come from increased performance but rather from the release of company funds reserved for losses. Although fourth quarter credit card defaults fell slightly to 9.58 percent from third quarter's 9.59 percent and same time last year's 6.93 percent, Capital One expects its domestic card defaults to peak near 11 percent during first quarter 2010. If losses continue to increase, Fairbank's performance package could leave him high and dry. It most likely will motivate him to seek creative ways to offset a decline in consumer and commercial loan business and reduced cardholder spending.