<PAGE>   1

                                                                    Exhibit 10.5


                             MELLON BANK CORPORATION
                 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS (1989)


I.       Purpose

The purposes of this Stock Option Plan for Outside Directors (1989) are to align
the interests of the outside directors of Mellon Bank Corporation (the
"Corporation") more closely with the interests of the Corporation's
shareholders, to provide such directors with an additional inducement to remain
in the service of the Corporation with an increased incentive to work for its
long-term success, and to establish an effective element of a reasonable
directors' compensation package.

II.      Definitions

The following terms shall have the meanings indicated below:

2.1 "Common Stock" shall mean the common stock, par value $.50 per share, of the
Corporation.

2.2 "Corporation" shall mean Mellon Bank Corporation.

2.3 "Business Day" shall mean any day on which the market used to determine the
Fair Market Value of the Common Stock is open for trading.

2.4 "Fair Market Value" shall mean the closing price of the Common Stock on the
New York Stock Exchange on the relevant date. If on the relevant date the Common
Stock is not listed on the New York Stock Exchange, "Fair Market Value" shall
mean the closing price of the Common Stock on the relevant date on the principal
stock exchange on which the Common Stock is listed. If the Common Stock is not
listed on any stock exchange on the relevant date, "Fair Market Value" shall
mean the mean between the bid and asked price of the Common Stock as reported on
the National Association of Securities Dealers Automated Quotation System on the
relevant date.

2.5 "Outside Director" shall mean any individual who on the relevant date is a
member of the Board of Directors of the Corporation but is not an employee of
the Corporation.

2.6 "Plan" shall mean the Mellon Bank Corporation Stock Option Plan for Outside
Directors (1989).

<PAGE>   2

2.7 "Service Year" shall mean the period beginning on the third Business Day
after the Corporation's annual meeting of shareholders at which directors are
elected and ending on the date of such annual meeting in the following year.

2.8 "HR Head" shall mean the head of the Human Resources Department of Mellon
Bank, N.A.

2.9 "Option" shall mean an option granted to an Outside Director pursuant to the
Plan.

2.10 "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended from
time to time, or any successor rule.

III.     Administration

3.1 Self-Operative Plan. The Plan is intended to be self-operative to the
maximum extent consistent with prudent business practice. Under no circumstances
shall any individual or group of individuals exercise discretion with respect to
designating the recipient of an Option, the number of shares of Common Stock
that are subject to an Option, the date of grant for an Option or the exercise
price for an Option. Any action of the Nominating Committee of the Board of
Directors to set or recommend retainers or fees shall not be deemed to be such
an exercise of discretion, regardless of such action's effect on the number of
shares that become subject to Options pursuant to the formula in Section 5.4
hereof.

3.2 Certain Administrative Duties. Within the parameters set forth in Section
3.1 hereof, the HR Head shall administer the Plan. The HR Head's actions and
interpretations under the Plan shall be final, conclusive and binding, the HR
Head shall not be liable for any action taken or decisions made in good faith
relating to the Plan or any Option thereunder.

3.3 Source of Shares. The shares of Common Stock that may be issued upon the
exercise of Options under the Plan may be either authorized but unissued shares
or authorized and issued shares held in the Corporation's treasury. The
aggregate number of shares of Common Stock which may be issued under the Plan
shall not exceed 2,400,000 shares, subject to adjustment pursuant to Section 8.6
hereof.

IV.      Grantings of Options

4.1 Timing. Except for individuals who become Outside Directors during the
Service Year (as described in Section 4.3 hereof), Options will be granted once
per Service Year on the third Business Day following the Corporation's annual
meeting of shareholders at which directors are elected.



                                       2
<PAGE>   3


4.2. Recipients. Options will be awarded in equal amounts to all individuals who
are Outside Directors on the date of grant.

4.3 Mid-Service Year Elections. A director who is elected by the Board of
Directors after the start of a Service Year will be granted an Option having
terms (including term, exercise dates, and exercise price) identical to the
Options granted to Outside Directors at the start of that Service Year, except
that the number of shares of Common Stock subject to such Option shall be the
number of shares that are subject to each Option granted at the start of such
Service Year multiplied by a fraction the numerator of which is the number of
days during such Service Year that the recipient of such Option will serve as a
director and the denominator of which is the number of days in the Service Year
(with fractional shares being rounded upward to the nearest whole share).

4.4 Stock Option Agreements. The grant of any Option shall be evidenced by a
written "Stock Option Agreement" executed by the Corporation and the optionee.
The Stock Option Agreement shall contain the number of shares of Common Stock
that are subject to the Option evidenced thereby, the other essential terms of
the Option determined in accordance with Section V hereof, and other terms that
are not inconsistent with the requirements of this Plan.

V.       Terms of Options

5.1 Terms of Options. All Options, other than Options granted to an Outside
Director upon his or her election during a Service Year, shall have a term of
ten years from the date of grant, subject to earlier termination pursuant to
Section 5.5 hereof.

5.2 Exercise of Options. All Options, other than Options granted to an outside
Director upon his or her election during a Service Year, shall become
exercisable on the first anniversary of their grant date.

5.3 Exercise Price. The exercise price for all Options, other than Options
granted to an Outside Director upon his or her election during a Service Year,
shall be the Fair Market Value of the Common Stock on the date the Option is
granted.

5.4 Number of Shares. The number of shares of Common Stock that may be purchased
upon exercise of an Option granted for a given Service Year shall be 3,300. The
number of shares subject to an Option shall be subject to adjustment in
accordance with Section 8.6 hereof.

5.5 Forfeiture. Options that have not become exercisable on the date the
optionee ceases to serve as a director of the Corporation for any reason other
than the optionee's death, disability or completion of the Service Year shall be
forfeited and terminated immediately upon such termination of service. Options
that have become exercisable shall remain exercisable, and shall no longer be
subject to forfeiture, throughout their ten-year terms, regardless of whether
the optionee is a director of the Corporation at the time the Option is
exercised.



                                       3
<PAGE>   4

VI.      Exercise of Options

6.1 Notice of Exercise. An Option shall be exercised by delivery to the H.R.
Head of a written notice of exercise in the form prescribed by the H.R. Head for
use from time to time. Such notice of exercise shall indicate the number of
shares as to which the Option is exercised and shall be accompanied by the full
exercise price for the Options exercised.

6.2 Form of Payment. The exercise price may be paid in cash or, in whole or in
part, by surrender of shares of Common Stock, which shall be credited against
the exercise price at their Fair Market Value on the date the Option is
exercised.

VII.     Advisory Board Members

Members of the Corporation's Advisory Board shall be granted options under this
Plan in the same amounts and on the same terms as options granted to Outside
Directors; provided, however, no option shall be granted to an individual upon
his or her election to the Advisory Board after the start of the Service Year.

VIII.    Miscellaneous

8.1 General Restriction. Each Option under the Plan shall be subject to the
requirement that, if at any time the H.R. Head shall determine that any listing
or registration of the shares of Common Stock, any consent or approval of any
governmental body, or any other agreement, consent or action is necessary or
desirable as a condition of the granting of an Option or issuance of Common
Stock in satisfaction thereof, such grant or issuance may not be consummated
unless such requirement is satisfied in a manner acceptable to the H.R. Head.

8.2 Non-Assignability. No Option under the Plan shall be assignable or
transferable by the optionee, except by will or pursuant to applicable laws of
descent and distribution. During the life of an optionee, an Option shall be
exercisable only by such optionee.

8.3 Withholding Taxes. Whenever the Corporation issues or transfers shares of
Common Stock under the Plan, the Corporation shall have the right to require the
optionee to remit to the Corporation an amount sufficient to satisfy any
federal, state, and local withholding tax requirements prior to the delivery of
any certificate for such shares.

8.4 No Right to Continued Service. Nothing in the Plan or in any agreement
entered into pursuant to the Plan shall confer upon any optionee any right to
continued service as a director of the Corporation or any subsidiary or affect
any right of the Corporation or a subsidiary, acting through their Boards of
Directors or otherwise, to terminate or otherwise affect the service of such
optionee.



                                       4
<PAGE>   5

8.5 No rights as Shareholders. Holders of Options under the Plan shall have no
rights as shareholders of the Corporation resulting therefrom unless and until
certificates for shares of Common Stock are registered in their names in
satisfaction of a duly exercised Option.

8.6 Adjustments. In the event that the outstanding shares of Common Stock of the
Corporation are changed in number, class or character by reason of any split-up,
change of par value, stock dividend, combination or reclassification of shares,
recapitalization, merger, consolidation or other corporate change, or shall be
changed in value by reason of any spin-off, dividend in partial liquidation or
other special distribution, the Board of Directors of the Corporation may make
any changes it may deem equitable and appropriate in outstanding Options and/or
in the number of shares of Common Stock reserved for issuance under the Plan.
For purposes of this Section 8.6, it is intended that, absent reasons to the
contrary, adjustments to Options be consistent with any changes or lack of
changes to other options on the Common Stock resulting from the same cause.

8.7 Amendment or Termination of the Plan. The Board of Directors of the
Corporation may amend or terminate the Plan as it deems advisable; provided,
however, no such amendment or termination may (a) impair the rights of an
optionee under an Option previously granted, (b) effect a change to any part of
the formula setting the amount, price and timing of Option grants more often
than permitted under Rule 16b-3 (a change in the level of actual or projected
retainer amounts not being deemed a change to such formula for that purpose), or
(c) without the approval of the Corporation's shareholders, amend any other
provision of Sections IV or V of the Plan.


February 2000


                                       5