BEVERLY — Top executives aren't the only ones benefiting from the demise of the North Shore's two oldest banks.
The majority of Danversbank's part-time board of directors could end up cashing in more than $1 million each thanks to the bank's acquisition of Beverly National Bank in 2009 and its upcoming merger with People's United Bank.
The directors, who voted in favor of both mergers, received $633,867 each in stock awards and options in the Beverly National merger and are due to receive an average of $367,220 each in the People's United deal, according to Securities and Exchange Commission filings.
Those figures don't include the long-term care insurance premiums that People's United has agreed to pay for 15 directors and their spouses, at an average cost of $101,231 apiece.
Danversbank's top executives will also receive millions when the merger is compete. CEO Kevin Bottomley is in line to earn at least $17 million, according to SEC filings.
The payoff for executives and directors will come as People's United Bank plans to lay off 91 Danversbank employees, nearly one-quarter of the bank's 400-person workforce, starting Aug. 1, after the merger is complete.
The 16 directors did not return phone calls or emails, or referred questions about their compensation to Bottomley.
Bottomley said the directors had a "fiduciary obligation" to act in the best interests of the bank's investors when considering the merger with People's United.
"We didn't seek bids," he said. "There was not a concerted effort to, quote, put the bank up for sale. There was a concerted effort to build up the best bank we could.
"There was a lot of time, a lot of effort, a lot of fiduciary obligation, particularly when they were directors of a public company. Their compensation is in line with that of a director of an almost $3 billion public company."
Danversbank's board of directors is made up of three top executives, including Bottomley, plus 16 non-bank employees. The directors attend about a dozen meetings per year and are charged with looking out for the interests of the bank's shareholders.
The non-bank-employee directors are paid an annual retainer of $10,000 and receive $800 for attending each board meeting and $700 for attending the board's committee meetings. Directors who serve on the bank's board of investment committee are paid $15,000 per year.
The full board met 10 times in 2009, according to Securities and Exchange Commission filings. Board members also serve on one of four committees. The audit committee met eight times, the compensation committee seven times and the severance committee three times. The executive committee did not hold any meetings in 2009.
The board of directors nominates candidates to fill vacancies on the board, and stockholders vote to elect them. The two longest-serving members, Diane Brinkley and Eleanor Hersey, have been on the board since 1988. Robert Broudo, John Drislane, John Ferris, Thomas Ford and Diane Stringer joined in the 1990s.
The other board members are Craig Cerretani, Brian Cranney, Neal Goldman, Mary Moran, Michael O'Brien, John Pereira, Mark Glovsky, Pamela Scott and Michael Tripoli. Glovsky, Scott and Tripoli were on the board of directors of Beverly National Bank and joined the Danversbank board when the banks merged in 2009.
Thirteen of the directors — Brinkley, Broudo, Cerretani, Cranney, Drislane, Ferris, Ford, Goldman, Hersey, Moran, O'Brien, Pereira and Stringer — received $633,867 in stock awards and stock options in 2009.
The directors were given the stock awards and the right to purchase stock options under an incentive plan approved by stockholders in 2008, the year the bank converted from a mutual bank to a public bank. The stocks vested when Danversbank acquired Beverly National the next year, allowing the directors to cash in the stock.
The scenario is repeating itself this year with the impending merger of Danversbank and People's United. When the deal closes, which the bank expects to take place next month, the 16 non-employee directors will be eligible to cash in a total of 416,903 shares for $5.87 million, according to SEC filings. That's an average of $367,200 per person.
Raminder Luther, a professor of accounting and finance at Salem State University, said the payouts expose the flaws in a system in which executives and directors benefit at the expense of employees.
"They are all directly tied to the performance of the stock and absolutely not to lower-level employees," Luther said. "The board of directors obviously stand to gain (in a merger) because they know that the stock price is going to go up."
Danversbank's stock price was $10 per share when it first went public in 2009. The merger agreement between Danversbank and People's United values Danversbank's stock at $23 per share.
Richard Bliss, an associate professor of finance at Babson College who has written about bank compensation, said it's not unusual for directors, as well as executives, to personally benefit when their bank combines with another.
Bliss said he sees nothing wrong with directors benefiting from an increase in share prices because the rest of the bank's shareholders also benefit. Tying directors' compensation to share prices is preferable to paying them a flat fee whether or not the bank is performing well, he said.
"The directors are there to represent the shareholders, and by virtue of the fact that shareholders got a 35 percent premium (when the stock price increased after the merger announcement with People's United), the directors can say we did well by the shareholders, which is what their fiduciary responsibility is," Bliss said.
The merger agreement between People's United and Danversbank must be approved by the Massachusetts Division of Banks, which held a public hearing on the plan last week.
Division of Banks spokesman Jason Lefferts said regulators are not required to review executive and director compensation when considering mergers. But Lefferts said regulators did ask officials from both banks for more information on the compensation deals, as well as on the merger's impact on job losses and small business lending.
Representatives of the two banks were the only people to testify at last week's hearing, Lefferts said.
Staff writer Paul Leighton can be reached at 978-338-2675 or by email at pleighton@salemnews.com.
Danversbank board of directors
Robert Broudo, headmaster of Landmark School
Brian Cranney, president of Cranney Companies
John Ferris, president of Copley Capital
Mark Glovsky, managing partner of Glovsky & Glovsky
Eleanor Hersey, partner/treasurer of Sunset Acres LLC
Mary Coffey Moran, financial consultant
Pamela Scott, president/CEO of LVCC Inc.
Michael Tripoli, partner of Grandmaison & Tripoli LLP
Diane Brinkley, retired owner of Murphy's Fruit Mart
Craig Cerretani, principal of Longfellow Financial LLC
John Drislane, commercial real estate developer
Thomas Ford, president of T Ford Co. Inc.
Neal Goldman, vice president at Iron Mountain Group
Michael O'Brien, president/CEO of Eagle Air Freight
John Pereira, president of Combined Properties
Diane Stringer, president/CEO of Hospice of the North Shore & Greater Boston
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