In a move that’s raising strong investor ire, Washington Mutual’s board voted this week to shield executive bonuses from the effects of the mortgage downturn. In a filing with the Securities and Exchange Commission earlier this week, the bank disclosed that it will carve out losses from the mortgage mess in calculating bonuses for senior executives, including CEO Kerry Killinger. In the filing, WaMu said it would carve out loan loss provisions for its mortgage business as well as expenses related to foreclosed real estate in calculating the net profit target used to determine executive bonuses. It also said it would exclude resizing or restructuring charges, as well as expenses tied to foreclosures, in calculating a non-interest expense target. Both the net profit and non-interest expense targets represent more than half of the weight assigned to the overall performance assessment used to determine bonus payouts. WaMu’s Killinger, whose base salary is $5.07 million per year, stands to make nearly $28 million in bonuses during 2008 under the terms of plan — a bonus that can be earned irrespective of how the company manages its mortgage exposure throughout what many expect to be the toughest year in mortgage banking history. Investors are upset, said the Wall Street Journal:

The new formula angered some WaMu investors, who have seen the value of their holdings shrivel as the thrift’s mortgage troubles worsened. In the past year, WaMu’s share price has tumbled about 70% — to where it was about 12 years ago. The shares fell 26 cents, or 1.9%, to $13.39 in New York Stock Exchange composite trading. “They’ve cost their shareholders a lot of money,” said David Dreman, chairman of Dreman Value Management LLC, which holds 27.9 million WaMu shares. “Bonuses should be given to the executives who enhance shareholder value, not destroy it.” In a research report, Frederick Cannon, an analyst with Keefe, Bruyette & Woods, expressed concern that the cash-bonus formula “could result in executive focus away from issues, particularly credit management, that we feel are critical to the success” of WaMu. Mr. Cannon, who is forecasting a steep loss by WaMu this year largely because of housing woes, called on the company’s directors to “revisit the 2008 compensation plan and make managing credit a top priority of senior management with objective rather than subjective measurements.”