Legal tinder: Tar Heel CEO pay didn't increase as much in 2003, but it still fans the flames of shareholder discontent.

• Author: Roush, Chris
• Position: Chief executive officer

High in the 60-story office tower that is the apex of Charlotte's skyline, Ken Lewis huddled last December with some fellow members of his board of directors. Bank of America Corp. was wrapping up its best year ever: Net income would reach $10.8 billion, and only two months earlier, the company had announced it was buying FleetBoston Financial for $47 billion. Lewis told them he wanted out of his employment contract.

He wasn't bidding farewell to BofA--just the contract. From then on, his pay would be based solely on the company's performance. When word reached the public, the bank got a PR boost. Corporate watchdogs praised it as a step away from the practice of paying CEOs like lords even when shareholders are suffering like serfs.

In fact, little in Lewis' pay package has changed. In spurning his contract, which would have expired this month, he gave up the guarantee of a $1.5 million salary, a $2 million-a-year pension when he retires and a severance ance package that would have paid him his salary and his highest bonus from the three previous years. If he had been canned then and there, the nine months left on his contract would have added up to about $5.2 million in salary and bonus.

But he still gets a $1.5 million salary, as he did in 2003, says Paul Fulton, a member of the board's compensation committee. And he can still get a bonus. His golden years are still covered by BofA's retirement plan, and if he and the bank were to part ways, they would negotiate a settlement to replace the severance agreement. "It really wasn't a big deal," says Fulton, chairman of Bassett, Va.-based Bassett Furniture Industries and a former dean of UNC's Kenan-Flagler Business School. "It was a statement. A contract is just a little bit of a security blanket."

A new CEO needs that security blanket until he can establish credibility and a track record. But many established chief executives don't have one: Only about a third of those running companies in the S & P 500 index have employment contracts, according to The Corporate Library, a Portland, Maine-based company that researches corporate governance. In a sense, Lewis' move was merely a rite of passage for a successful chief executive. He was promoted from chief operating officer to CEO in 2001, when the employment agreement he signed in 1998 was extended three years.

BofA has amply rewarded that success. Lewis was the highest-paid CEO among the state's 75 largest public companies last year, according to a study conducted for BUSINESS NORTH CAROLINA by the Charlotte office of Findley Davies Inc., a Toledo, Ohio-based human-resources consultant. The study calculates CEO pay using salary, bonus, estimated value of stock options granted, restricted-stock awards, long-term incentive payouts and all other compensation.

By at least one measure he was still a bargain. For the third straight year, BofA earned the most net income per dollar paid its CEO--$444.75, nearly double that of any other company on the list. With the company performing so well, the end of 2003 was an opportune time to take a stand for performance-based pay. Lewis' salary--once guaranteed by contract--was only 6% of his $24.3 million compensation. Combined with his bonus, it was only 28%. He had unexercised stock options, including those granted in previous years, worth $23.8 million.

"I'm not sure it was entirely altruistic," says Laura Hanf, senior consultant at Findley Davies. "Quite frankly, he has so much...