A gold star for City National …

July 1, 2010

When a chief executive’s contract is renewed, we tend to see pay rise, perks expand and change-in-control provisions become more generous. So we admit to being a little surprised when we saw the new agreement City National (CYN) inked with its chairman and CEO, Russell Goldsmith.

The agreement was disclosed in an 8-K filed on Tuesday, and it reined in the perks and protections, on not just one but several fronts.

Goldsmith’s pay did go up up, but modestly (by executive standards, anyway): His salary rose to $980,000 from $978,528. His target bonus stayed roughly level at $1.5 million for this year, rising to $1.7 million next year and thereafter. His target equity award rose to $2.64 million from $2.35 million, but now is tied to performance goals. Stock options also rose somewhat going forward.

There’s a clawback provision — not terribly unusual anymore, and this one covers only “excess compensation resulting from materially inaccurate financial statements or any other materially inaccurate performance metric criteria” — so if the financials are bad but it doesn’t translate directly into more pay there’s no clawback.

But on change-in-control provisions, the company seems to have really gone to town: The company won’t pay excise taxes on any golden parachute payments anymore, and it will no longer give him a chance to quit (with severance) in the thirteenth month after a change in control. Severance calculations would be based on his target bonus, instead of his highest recent bonus, and to receive the payout, he’d have to lose his job — a “single trigger” of just a change in control wouldn’t be enough.

The company also tightened the terms for termination absent some sort of deal. Goldsmith would no longer receive extra pension credits on termination without cause, and any payout here would also be based on his target bonus (instead of his highest one). If he’s shown the door after the new four-year contract expires, he gets a year’s pay as severance — but he no longer is entitled to three years’ pay if his contract is simply not renewed.

What makes this all the more remarkable is that City National’s shares haven’t been doing all that badly of late; net income in 2009, however, took a dive from 2008.

As is often the case with the gold stars that we hand out, we can’t promise that City National and Goldsmith are doing everything right. But when it comes to the changes laid out in this 8-K, we like what we see. And it deserves at least a little recognition.

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