Renumeration: Out of touch with reality
Compensation levels in the US show that most bank CEOs have yet to learn the meaning of the word restraint.
At every year-end the focus turns to bankers’ bonuses and compensation. Research by Dick Bove of Rochdale Securities shows that 2011 was particularly fruitful for bank chief executives.
At 23 of the top US financial institutions, the average bank CEO compensation was $7.74 million. The range was from just under $1 million up to $42 million – in a year when banking stocks were the worst performers.
Analysis such as Bove’s indicates that little has been done to address the high levels of compensation of bank senior managers. In 2009, when banks received Tarp support, executives were required to take large cuts and in some cases took home nothing at all. Bank of America CEO, Ken Lewis, for example, took a salary of zero and was even required to pay back $1 million.
Now that money has been repaid to the US government, it is salaries as usual. The fight to reduce pay has been put to one side, even though it is clear that banks can and will turn again to the government for a bailout should they need to.
Nor has transparency about pay been achieved. The disclosures about compensation in filings of forms DEF 14a are mind-boggling. Bove, who took the data from the forms, from research firm SNL Financial and from an external consultant, describes uncovering executive compensation as "rocket science".
In defence of the argument that pay should not directly reflect a bank’s stock price, some argue that the performance of US bank stocks is out of kilter with their performance. For example, earnings per share went up 13% for the banks covered by Rochdale while stock prices fell 30%.
Even so, it is hard to justify the 2011 earnings of $42 million and $21 million a year of JPMorgan’s Jamie Dimon and Goldman Sachs’s Lloyd Blankfein respectively. Morgan Stanley’s James Gorman cleared around $10 million. Bank of America’s Brian Moynihan took home $2.26 million. And Citigroup’s Vikram Pandit, who does not take a basic salary, took home $1.3 million, according to the research. At the lower end of the pay scale is Evercore's Ralph Schlosstein, whose compensation was under the $1 million mark with $978,000.
It might seem caviling to complain about what bank CEOs earn when they work at publicly quoted companies that have paid back government money. However, the wounds from the financial crisis are still raw. The US has barely started to recover and unemployment is still a big problem. Europe’s economic crisis has only just started to get into full swing.
Executive compensation figures this high just rub salt in the wounds. Dimon’s exceptional salary aside, the compensation of bank CEOs is between 40 and 60 times that of the average employee salary at their banks. Shareholders will do little to press for change given that they will not want to bring negative attention to bear on the firms in which they invest in such volatile markets. These CEOs should be more restrained until the global economy is out of the woods.