A $125 million goodbye for Ken Lewis

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When Ken Lewis finally leaves Bank of America (BAC) he will get a $125 million goodbye from the financial firm, unless the federal government’s pay czar decides to challenge the package.

Most of the Lewis compensation was set long before the big bank got into trouble and had to take $45 billion in TARP funds, so his employment contract may be sacrosanct. If so, he will get one of the largest severance packages in American corporate history.

According to Reuters, “Lewis’ severance package includes $53.2 million in retirement benefits, mostly from a program frozen years ago, and $72.8 million in accumulated stock and other compensation, according to an analysis by consultant James F. Reda & Associates.”

The question now is whether the new government pay czar, Kenneth Feinberg, may try to void the arrangement. Probably not. The Administration does not want to be seen as violating contract law. Feinberg has not challenged a $100 million bonus to Citigroup (C) commodities trader Andrew Hall, probably because the compensation was part of a written deal with the bank.

Feinberg’s problem with Lewis may end up being very simple. Once the government abrogates one contract, how many more can it cancel? That raises the question of whether any compensation agreement between a large Wall St. firm and an employee will be honored. It also raises the specter that the government may not honor contracts in other parts of the business sector if companies are taking federal money for any purpose. Contract law violations would certainly be tested in the federal court system.  Feinberg walks a fine line.

Lewis will probably get his $125 million. Some analysts would say he deserves it. He built Bank of America into a financial giant. To a large extent, the bank’s near-collapse was as much as part of the credit crisis as it was any decisions that he made.

That will not keep the public from believing that the deck is stacked against small shareholders and in the favor of rich CEOs.