CIT paid huge retention bonuses
"Going into 2009, our guiding compensation philosophy has been to provide a total pay package that motivates our named executive officers to achieve our short-term and long-term business goals," CIT said. "To sustain our performance, we need to retain our existing talent and to attract individuals to our key leadership positions."
The lender's pay practices are limited by the $2.33 $5.72 billion it received under the Troubled Asset Relief Program (TARP). In light of these rules, the board's compensation committee is "redesigning our senior executive officer compensation program for 2009," the proxy said.
One person not participating in the company's largess is Chief Executive Jeffrey Peek, though he has been handsomely compensated as CIT's fortunes dwindled. This may lead the company to face uncomfortable questions about its pay practices like other TARP recipients such as American International Group (AIG).
Peek has watched his total compensation fall from $13.8 million in 2006 to $9.049 million in 2007 to $5.42 million in 2008. He is a given access to a car and driver and is allowed to use the company aircraft for personal use. Interestingly enough, Peek's wife Liz penned an anonymous article for the now-defunct Portfolio magazine about the hardships of being a TARP wife.
Neither Peek, who lost the CEO's job at Merrill Lynch to Stan O'Neal, nor any other named executive, received an increase in salary. But CIT awarded James Duffy, executive vice president for Human Resources, and C. Jeffrey Knittel, president, transportation bonuses of $450,0000 and $850,000 respectively "to reward their exceptional performance in 2008."
But Peek, who has headed the company since 2003, did not receive any cash bonus in 2008 and neither did CFO Joseph Leone. The company, however, did grant him more than $3 million worth of restricted stock and options awards.
For a while, Peek's strategy of banking on vendor financing and medical and industrial equipment along with subprime loans paid off, pushing shares to a high of $61.59. The company moved into swanky new headquarters in Manhattan and Peek became active in charitable institutions. In 2006, net income surpassed $1 billion, a 39 percent increase over two years.
But as Bloomberg News notes, things then went awry. Shares plummeted 98 percent after the New York-based firm reported eight -- not a misprint -- straight money-losing quarters. Standard & Poors recently slashed its ratings to seven levels below investment grade.
CNBC is reporting that the company is trying to obtain financing from private investors but that a bankruptcy could come as soon as tomorrow.
The powerful National Retail Federation today called on the Obama administration to bail out CIT saying "failure of the major lender could have severe consequences for the retail industry and the nation's economy." Officials at other business groups could not be reached. At least one prominent analyst considers the company's situation pretty hopeless.
"The cost of raising money is greater than they could earn," said Sean Egan, managing director of Egan-Jones Ratings and Analytics, in an interview with DailyFinance. "CIT was on a slippery slope and now it is gaining momentum. They are in an unsustainable position and every day it gets worse."
How ironic would it be if Peek met the same fate as his rival O'Neal.