By John Byczkowski
The Cincinnati Enquirer

Fifth Third Bancorp CEO George Schaefer Jr. was given $14.9 million in pay and compensation for 2003 during what was a lackluster year for the Cincinnati-based bank holding company, according to financial documents filed with the Securities and Exchange Commission.

Schaefer's salary and bonus were cut by 23 percent, but his overall compensation was more than triple what he received in 2002.

Most of that money came from stock options. Schaefer cashed in options worth more than $8.7 million last year.

He also benefited from a new grant of options worth $1.2 million at year's end, and, in a rare move for Fifth Third, a grant of restricted stock worth more than $800,000. Restricted stock vests over several years, and is typically awarded to keep an executive with the company.

Fifth Third's profits grew at the second-slowest rate of the past 15 years, and its stock rose less than 1 percent in 2003.

In addition, the company operated under federal and state investigations into bookkeeping irregularities in its trust operations. Fifth Third is barred from making acquisitions during that probe - its acquisition of Franklin Financial Corp. of Tennessee has been on hold - and that has made growth at the bank more difficult. The company says in its annual report, issued last week, that it believes the improvements to its bookkeeping are nearly complete and regulators will verify the changes in this quarter.

Because of Fifth Third's problems in 2003, the bonuses paid to the company's top executives were cut by about half, and stock option grants were smaller.

Still, Schaefer and three other executives each cashed in $1 million or more in stock options. With salary and bonuses, each of those three executives - chief financial officer Neal Arnold and executive vice presidents Stephen Schrantz and Robert Niehaus - took home more than $2 million in 2003.

Fifth Third spokeswoman Robbie Jennings declined to elaborate on the pay packages, beyond what was disclosed in the company's proxy statement, also filed last week with the SEC. "Executive compensation is in line with earnings," she said.

The company's board of directors set goals for 2003 of 10 percent growth in net earnings and 12 percent growth in earnings per share. But net earnings grew just 7 percent, and earnings per share grew just 9 percent - a weak performance for a company accustomed to double-digit growth. Since bonuses are based on profit growth, the executives all earned smaller bonuses in 2003 - the smallest they'd been since 1996.

The bonus reduction "shows you the board wasn't satisfied with the overall performance of the company," said Fred Cummings, bank analyst with McDonald Investments in Cleveland. "Management did not get paid as well as they did in the past. They had a tough year."

Historically, Fifth Third executives have not been as well paid as leaders at similar banks, Cummings said. In recent years, the company has raised pay to bring it more in line with the industry, though Fifth Third's compensation is still based more heavily on stock than many other banks, he said.

But Cummings noted the award of 15,000 shares of "restricted" stock worth more than $800,000 to Schaefer was rare. "Fifth Third normally does not issue restricted stock," he said.

In this case, the shares vest to Schaefer over three years, provided Fifth Third "maintains satisfactory regulatory ratings," the proxy said.

Jennings said that refers to ratings from the Federal Reserve Bank of Cleveland and the state of Ohio, though she declined to elaborate. She said she could not remember an instance where Fifth Third received less than a satisfactory rating on any of those measures.

The chairman of Fifth Third's compensation committee - Joseph Head Jr., CEO of Covington manufacturer Atkins & Pierce - did not respond to a request for an interview.

Schaefer's $14.9 million

15,000 shares of restricted stock, which vests to Schaefer over three years, provided Fifth Third maintains "satisfactory" ratings among state and federal regulators. Fifth Third valued the stock at $859,650. Even before it vests, Schaefer collects dividends on the stock.

220,000 stock options, which vest to Schaefer over four years. If they had been exercisable at the end of 2003, their value would have been $1.7 million.

$2.1 million in salary, bonus and benefits, including $95,795 in trust fees and estate planning services.

$1.2 million in stock dividends paid on Schaefer's 1.1 million shares of Fifth Third stock. At year end, the stock was worth $66.1 million.

$277,203 in profit sharing and deferred compensation.

$8.7 million in stock options exercised. As of the end of 2003, Schaefer still owned options worth $61.2 million.

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E-mail johnb@enquirer.com