Bank of Bermuda staff yesterday grilled the bank?s top two executives on the multi-million dollar bonus they stand to earn under the pending sales agreement to multinational banking giant HSBC.

Materials released to shareholders this week revealed that five senior executives could benefit if they, within a year of the bank?s sale, reduced head count of 150, or savings of $12 million in payroll, while retaining 70 percent of workers defined as key to the operation.

CEO Henry Smith and COO Philip Butterfield met with some of the bank?s staff yesterday following Monday?s release of the information that showed that in total the executives could make $6.59 million in cash and an additional $4.7 million in HSBC restricted shares becoming vested in three years. The bonus would be paid after 14 months.

The sale, which was announced at the end of October, carries a $1.3 billion price tag and is subject to regulatory and shareholder approval.

Mr. Butterfield yesterday defended the payment to the senior executives as standard procedure in any large takeover transaction.

With the exception of Henry Smith, the group will only be due the cash and investment options if they meet the targets of cutting jobs and retaining key staff identified by both HSBC and the bank.

Those who stand to benefit from the incentive plan, if they meet the targets are, Mr. Butterfield and head of private client services Wayne Chapman, head of banking services Michael Collins and head of the bank?s fund administration arm, Global Fund Services, Paul Smith.

A bank spokesperson said Mr. Smith would be paid the bonus, regardless of whether or not the targets were met, and would receive this when he leaves the bank, reportedly within the first year of HSBC taking over the bank.

The bank reported that Mr. Smith was included in the bonus plan in exchange for his waiving of a 1999 severance plan in exchange for a one-year contract. Under the severance plan, he reportedly would have been paid slightly more than under the HSBC bonus plan. It was not known if Mr. Smith would be eligible for additional severance benefits when he leaves the bank.

Yesterday, staff reportedly addressed questions on the target-tied compensation to both executives with Mr. Butterfield saying there had been ?many questions? on the subject.

He did however cite both and the Bermuda Sun as provoking some of the interest with coverage of the incentive plan in business reports yesterday. ?You have given our employees lots of questions,? he said and took exception to how the incentive plan was described, saying that ?fat bonus? (in report) was language that was ?a little excessive?.

?In the sessions that I have had today, my colleagues were asking me to defend (this), and using your language of ?fat bonus?. What I have tried to do is get them to appreciate that these are the usual arrangements in any transaction of this nature.?

Reports reaching the newsroom also indicated that the subject had been a heated topic of conversation on the local radio talk shows who, like some Bank of Bermuda staff, were equating the executive bonus with job cuts.

When asked if the questions from staff were focused largely on the bonus issue, Mr. Butterfield it said this was one of a few areas of focus.

?When you use the adjective in front of it, you cause people to see it in a different light of this person taking advantage of us and you have to bring them back to centre.?

Mr. Butterfield stressed that the bonus package that they would receive if they met their targets of cutting 150 staff and retaining others was no different than what executives would have been paid had they left the bank.

?None of what is happening is a surprise. It is well within the bounds of expectation. But when you use the adjectives in front of it, or (as the Bermuda Sun did) equated it to a value ($70,000) on each of the persons who would no longer be with the organisation, it places the whole experience in the light of is this person taking advantage of us.?

Mr. Butterfield added that he did not see the bonus plan as additional reward being given to senior management, and that this is what he had stressed to staff: ?It is important that it is thoroughly understood that we did have in place a severance benefits plan that was to be invoked only in the event of a take-over, and that severance benefit plan called for the top executives to receive a specific level of payment.

?So (with HSBC) we have a takeover, so that severance benefits plan was operative. I?m not trying to pass language but what we chose to do, as we wanted to be part of that future, was convert that plan (to our new contract). Under that plan, in 12 months, all of us could have walked but we chose to be part of the future. And I view this as a contract.?

Mr. Butterfield said that although under the severance plan they would have each been paid slightly more, ?we saw it as an opportunity to affirm our commitment?.

In dealing with any negativity surrounding news of the bonus to executives, Mr. Butterfield said: ?My approach is to have as many conversations as I possibly can. Henry (Smith) and I are meeting with our colleagues over the next several days. And (we have been speaking) with shareholders in private meetings and over the telephone. We have the shareholder forums on Monday and Wednesday. Those are opportunities this month to clarify issues and we will do the same thing in January to afford shareholders the opportunity to ask their questions.?

As for who will be defined as ?key? employees, Mr. Butterfield said: ?My approach to colleagues is to say that we are going to have a well-defined business plan in place and that will assist us in affirming who the key employees are. And we will go about utilising all of the tools that are available to us to ensure that those key employees remain with the organisation.?

Mr. Butterfield said the key employees would know who they were: ?We will tell them,? he said, and underscored that with the merging of the two organisations, there could actually be some HSBC reductions in place of Bank of Bermuda cuts. These, he said, could take place in the global operations, and that those would count towards the 150 target.

He also said that with HSBC taking over the Bank of Bermuda there could be new work opportunities created on the Island and that if staff were able to be re-trained or ?re-tool?, those losing their jobs may be eligible for new positions. The bank has said in past that some of the reductions could be achieved through natural attrition, and retirement.