Mellon Financial Corp. said it will take a pretax charge of $19.3 million against its first-quarter earnings this year to account for $46.3 million in payments to former Chairman and Chief Executive Officer Martin G. McGuinn.

	Martin G. McGuinn

The disclosure came yesterday in the proxy statement that Mellon filed in connection with its April 18 shareholder meeting in Pittsburgh.

The proxy also included a proposal by the influential California Public Employees Retirement System seeking to make it easier to oust directors of the company. Shareholders will get to vote on the proposal. Mellon opposes the proposal, saying a thorough review of corporate governance practices now underway will lead to changes.

Most of the payments to Mr. McGuinn, 63, are based on his employment contract, which runs through January 2008. Long under pressure from shareholders for the company's lagging performance, Mellon announced Jan. 31 that Mr. McGuinn was stepping down early. He was replaced by Wachovia Corp. executive Robert Kelly, 51.

Under the terms of his contract, Mellon is required to pay Mr. McGuinn $5.1 million in salary and bonuses for the next two years. Options and restricted stock account for another $26.6 million, which assumes that Mellon will be able to meet the performance requirements tied to most of Mr. McGuinn's restricted shares.

The options and restricted stock will be worth more if Mr. Kelly is able to energize Mellon's stock, which has lagged shares of its competitors in recent years.

Separate from his contract, Mr. McGuinn will receive $13.7 million in salary and bonus payments Mr. McGuinn deferred in previous years, including $5.1 million in interest paid on the deferrals.

He also is entitled to the use of a car and driver and financial planning services through Feb. 13, 2007. Those costs aren't included because Mellon does not know to what extent Mr. McGuinn will take advantage of the perquisites.

Mr. McGuinn's pension, estimated at $1.3 million annually, will be based on him receiving credit for working through the length of his contract.

The $19.3 million charge for Mr. McGuinn's departure will trim first quarter earnings by 3 cents per share, said Richard Bove, an analyst with Punk, Ziegel & Co.

"At some point, shareholders should get tired of this stuff," he said.

According to the proxy, Mr. McGuinn's 2005 compensation totaled $7.6 million, down 24 percent from 2004. His pay included $2.5 million in salary and bonus and $2.4 million in restricted stock.

The shareholder proposal concerns a Mellon by-law requiring approval by owners of 75 percent of Mellon's shares in order to make changes involving Mellon's board of directors. The so-called supermajority vote is needed only if the board does not agree with the changes. The provision at issue covers the number of directors, how they are elected, filling board vacancies between shareholder meetings and removing directors.

Calpers, the proponent of the change and the nation's largest pension public plan, says it is nearly impossible to get stockholders to vote three-quarters of shares in favor of anything.

Companies requiring a 75 percent majority typically use it "to block initiatives opposed by management and the board of directors but supported by most shareholders," said the pension fund, which owns 2.3 million Mellon shares.

"Considering the company's five-year stock performance is a negative 20 percent, action is warranted," Calpers stated. It was referring to the five years ended Dec. 31, during which Mellon shareholders have seen the value of their investment fall nearly 23 percent, even after dividends were included.

Mellon said its own review of corporate governance practices will center on issues that relate to unsolicited takeover offers, an area in which directors can exercise considerable clout at the expense of shareholders.

Regardless of changes coming out of the review, Mellon will recommend at next year's shareholder meeting that the entire board be elected each year. Currently, a third of Mellon's directors stand for election each year and serve three-year terms.

Shareholder advocates say electing the entire board annually makes directors more accountable.