Marshall & Ilsley Corp. (MI), commonly known as M&I, said in a regulatory filing on Tuesday that it is restricting cash bonuses for its executives in 2009 to fall in line with the terms of the federal bailout program.

Some executive benefits such as bonuses, stock option grants, and retirement benefits and severance settlement are not allowed under the federal bailout program. All these benefits will now be replaced by “salary stock” in 2010.

The new compensation will take the form of common shares. The shares will be granted on each payday, based on the stock price at that time. The shares will be fully vested when they are awarded but the executives will be restrained from transferring the shares. An employee will be allowed to transfer only one-third of the shares each year for three years after they receive these.

M&I will also fund each executive a number of shares of restricted stock equal to half their aggregate annual base salary.

According to the new structure, Chief Financial Officer Gregory A. Smith’s salary will stay at $480,000. He will also receive stock salary of $720,000. Thomas J. O’Neill, the Senior Vice President, will again receive a salary of $415,000. He will also receive stock salary of $685,000. Kenneth C. Krei, Chairman and CEO of subsidiary M&I Trust Co., will see his salary increase to $480,000 from $415,000, plus a stock salary of $720,000.

As part of its participation in the Troubled Asset Relief Program (TARP) during the height of the financial crisis last year, M&I had received $1.7 billion in bailout money.

Last week, M&I announced the extension of its foreclosure moratorium term by an additional 90-day period. The moratorium was initiated on Dec 18, 2008, as part of the Homeowner Assistance Program. The foreclosure suspension now ends on Mar 31, 2009.

The ongoing financial turmoil has marred core growth across sectors and financial services did not go unscathed. Non-performing loans, declining credit quality in a lean job market and constant fluctuations in the financial markets led to a substantial loss of earnings relative to the historical levels. However, M&I has been able to meet most of the challenges by drastic cost-cutting, bonus-freezing and dividend reduction.

We believe that M&I advances to a more favorable environment. With a large loan loss reserve, a strong capital base and ample liquidity, M&I will be able to meet the fund requirements of its customers, going forward.

On Tuesday, the shares of M&I closed at $5.50 on the New York Stock Exchange, up 0.9% from last day’s closing price.

Zacks Investment Research

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