A respected advisory firm urges investors not to re-elect the six, criticizing their oversight of the company and its executive-pay policy.

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An influential advisory firm Thursday sharply criticized Washington Mutual’s board of directors and recommended shareholders vote against six of the 13 up for re-election at the company’s annual meeting this month.

Glass, Lewis & Co. of San Francisco focused its critique on the board committee that sets executive pay, though it also said the finance committee had been “ineffective” at monitoring how WaMu manages market and credit risks.

The firm urged shareholders to vote against all five members of the compensation committee — Chairman James Stever, Stephen Frank, Charles Lillis, Phillip Matthews and Margaret Osmer McQuade — as well as Mary Pugh, who heads the finance committee.

Like most mortgage lenders, WaMu has been forced to set aside huge sums to cover soured home loans and the declining market value of its mortgage-backed securities.

The Seattle company has cut thousands of jobs, and its share price has plunged by two-thirds during the past six months.

However, its 2008 bonus plan for about 3,000 top employees specifically excludes the effects of bad-loan set-asides, foreclosures and restructuring costs from the financial criteria used to judge the executives.

Instead, in addition to measures such as operating income, bank fees and “customer loyalty,” the compensation committee will subjectively evaluate “how well our executive management team addressed the challenges in the housing, mortgage and credit markets and the impact of those challenges on our financial results.”

WaMu has defended that approach, saying that the financial situation is so volatile that picking targets in advance doesn’t make sense. Instead, the company states in its proxy filing, “it would be best to evaluate this aspect of performance after the end of the year in light of actual events and market conditions during the year.”

But Glass, Lewis analyst Eric Dao said the changes to the bonus formula “may be blatant manipulation to allow the board to continue awarding bonuses to executives regardless of performance.”

In his report, Dao wrote: “Given that mortgages and real-estate loans make up a significant portion of [WaMu’s] business, we find no justification for excluding from the consideration of executive bonuses losses associated with those businesses, especially because [WaMu] had not previously excluded gains from those businesses in its executive bonus calculations.”

Last month, CtW Investment Group, affiliated with the Change to Win labor federation, called on shareholders to withhold their votes from Stever and Pugh.

Corporate elections aren’t like political elections. In virtually all cases, there’s only one company-endorsed candidate for each board slot. The only choice investors have is to vote for a nominee — one vote for each share owned — or “withhold” their votes. (Shares not voted don’t count either way.)

WaMu changed its bylaws last year so that candidates who get fewer “for” votes than “withholds” must offer to resign. The full board then decides whether to accept the resignation.

The electrical-workers union pension fund has submitted a resolution that would sharpen that requirement and write it into WaMu’s articles, where it could not be changed without a shareholder vote.

The firm also supported a proposal from the Service Employees International Union to separate the offices of board chairman and WaMu chief executive — a change that would force Chairman and CEO Kerry Killinger to give up one of his two longtime roles. Many corporate-governance activists believe the dual role inhibits boards from effectively overseeing management.

The other big proxy-advisory firm, Institutional Shareholder Services, will make its recommendations public shortly.

WaMu’s annual meeting is 1 p.m. April 15 at Seattle’s Benaroya Hall.

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com