Bank Shareholders' Executive Pay Revolt No Match For Big Returns

A protest sign is held up outside the Bank of America Tower, left, in New York. (AP Photo/Mark Lennihan)

The shareholder revolt against banker pay seems to have fizzled out.

Shareholders late last week rejected the pay plan for Sterling Bancorp, a New York-based regional bank, the latest in a small group of banks whose compensation plans have been judged and found wanting by shareholders.

But shareholders also approved the pay plans of two other regional banks, Maryland's Sandy Spring Bancorp and Pennsylvania's Orrstown Financial Services, ignoring the recommendations of proxy advisors Glass Lewis and Institutional Shareholder Services that they turn the plans down. The votes in favor of the plans were at least relatively close, both below 75 percent, according to the American Banker.

But just a few short weeks ago, there seemed to be a lot more momentum in favor of close scrutiny of banker pay. In the opening shot, Citigroup shareholders dramatically slapped down its pay plan. Shortly thereafter, regional bank FirstMerit suffered a similar fate, and several other banks seemed to be next in line, with "against" recommendations from Glass Lewis and ISS.

The rebellion was even poised to go global, with large minorities of shareholders voting against pay plans at Barclays and Credit Suisse, a striking departure from the usual practice of blindly rubber-stamping pay packages.

But the results since then have been hit-or-miss -- mostly miss. Huntington Bancshares last month managed to get its pay plan approved, despite proxy advisors' recommendations against them. In fact, several regional banks mentioned in articles talking about a new wave of say-on-pay rebellion have quietly managed to pass their compensation plans over advisors' recommendations, including Associated Banc-Corp, Hudson City Bancorp, TCF Financial and more.

Meanwhile, anybody hoping for some shareholder fireworks among the too-big-to-fail set will probably end up greatly disappointed. As David Reilly, of the Wall Street Journal's Heard on the Street column, noted last month, the CEO pay of the five top executives at the nation's six biggest banks increased 18 percent in 2011, while profits rose 9 percent. Nevertheless, proxy advisors have recommended that shareholders approve the pay plans at four of those six banks -- Bank of America, JPMorgan Chase, Wells Fargo and Morgan Stanley (no word yet on Goldman Sachs).

Wells Fargo shareholders heartily approved that bank's compensation plan, even with Occupy Wall Street protesters outside their door. The Wells Fargo plan raised CEO John Stumpf's pay 4.6 percent to nearly $20 million, despite its share price falling about 10 percent in 2010 and despite concerns raised by another advisory firm, GMI Ratings.

Wells Fargo's human resources director, in an interview with American Banker, said the bank's compensation plan is based on long-term returns and that executives are judged relative to their peers.

As we're finding out, shareholders actually have little in common with Occupy Wall Street protesters. Except in fairly extraordinary circumstances, they don't much care about how much people get paid, as long as earnings and share prices keep rising. We saw it last year, the first year say-on-pay votes were required by the new Dodd-Frank financial reform law, and we're seeing it again this year. Last year, only 36 of 2,225 companies said shareholders voted down their compensation plans.

The trend is not that different so far this year, DealBook's Steven Davidoff wrote last week:

The fact is that shareholders — except for activist hedge funds who specialize in agitating for change — have little incentive to act. If they don’t like a company’s practices, they can simply sell and invest in another company. Compare this with shareholder activism, which is not only costly but risky, with benefits accruing to all other shareholders.

In fact, Davidoff warns, having say-on-pay votes every year that almost always favor soaring pay packages gives a veneer of respectability to these plans, giving banks even less reason to change their ways, and making non-shareholders even angrier:

The fact that executive compensation increased more than 12 percent in the first year after say-on-pay was introduced doesn’t give much comfort.

 

Comments

[loki]

01:37 AM on 05/08/2012

shareholders is a secondary stock market. It has no real bearing on the profitability or health of a company. Just the largest share holders of the company, like the CEO, Board members, and top executives. the higher they can get the share stock, the more they are worth. But high stock price does nothing for the company itself. Stocks only help the company when they are initially sold. After that, its all gambling among those who own the stock. Stock market is BS once in the secondary market, and ruin more companies than it helps after initial sale of the stock

[Carl Wesley Clark]

07:07 AM on 05/09/2012

Take a look at the voting structure over at the New York Times. Warren Buffet could not buy enough shares to vote in changes as the Sulzberger family controls a second class of voting shares outright, literally disenfranchising even their largest holders. Then their paper writes articles chastising the corporate governance practices of others. and dont get me started about a certain internet service provider who has lost 90% of its subscribers in the last decade.....

[raydevereaux]

06:16 PM on 05/07/2012

it seems like bank ceo raises are like tipping, well, they did ok, here is 20 pct or they sucked, here is 15 pct. the execs expect it and ya don't want to let them down

[neolow]

05:38 PM on 05/07/2012

Shareholders let loose a mighty fart
That stench reported to have reeked on high
Was revealed but a stinkie
Soon o'er powered by the smell of money.

[williamina]

12:27 AM on 05/08/2012

weird

[bleedingheartliberal218]

05:28 PM on 05/07/2012

Reinstate Glass-Steagall because Dodd-Frank is NO bank reform legislation and Glass-Steagall prevented the problems in the financial sector we are now experiencing and repeatingly bailing out with trillions of taxpayer dollars.

Bank CEOs should be paid 8 times what the lowest ranking bank tellers are paid -- that's the Buffett rule on executive compensation which he lives.
(Then I suspect bank tellers would be getting an astronomical pay increase.)

[williamina]

12:28 AM on 05/08/2012

just keep making it up, i feel better too

[vergoton]

04:47 PM on 05/07/2012

People That borrow for house, car, furniture, cards and owe more than 50 % are banks dream.......The best way to beat this recession is to live within our means..................

[babue]

05:56 PM on 05/08/2012

it's a bit hard to live within your means when your means are not much. Should we all move in together; like a commune; people own their own banks; their own businesses; their own schools; well you know like communists. would that hurt big business? or would they not feel a thing.

[vergoton]

06:18 PM on 05/08/2012

I guess you owe everything to the banks.................what good is it if you know that you have to work like an animal to have 3 weeks vacation and every 75 % of your paycheck goes to pay debt of things you "do not own" .................life is short.................

[aforbes808]

04:07 PM on 05/07/2012

Easy peasy. All unions, public and private need to threaten to pull their pension funds out of the market. The pigs will fall in line. Bullies only understand when their own livelihood is at stake. Peace

[williamina]

12:28 AM on 05/08/2012

press your luck

[aforbes808]

02:38 AM on 05/08/2012

If you don't have light, you don't have life anyway. It's nothing but history. It's time to change it for once. But they want war. Peace.

[Carl Wesley Clark]

06:58 AM on 05/09/2012

They unions and pensions don't own enough shares of anything to have the effect you think they would. Moreover, those pensions are mostly underfunded due to mismanagement and cannot afford to pull out of the market without going under. For all their bluster, the pensions vote in lockstep with the ISS and Glass Lewis types, as those firms provide plausible deniability in the case of an MF Global scenario, where the pensions did indeed vote for Corzine.
The only way to create the change you seek is to get publicly traded companies to speak directly to the largest institutional investors, and by that I mean Fidelity, Vanguard, T. Rowe, Dimensional, State Street, BlackRock, and a few selected others. The problem with that approach is that the issuers are loathe to communicate with those massive 5%+ holders as the results could be utter disaster in a number of ways, and of course, Broadridge Financial Services allows Issuers to know how their vote is going far in advance of the meeting, so if the call does not need to be made, it is not made, and something called Shareholder Engagement ceases to exist. You may be an owner of the company by holding the stock, but unless you own over 1% of the float your ability to effect change is strictly limited. Shareholder voting coalitions are not working either. Has Moxy Vote swung a single option plan? Has proxydemocracy? No.

[Matt12]

03:49 PM on 05/07/2012

Accordingt to Edward Conard, a Bain Capital partner and very close Romney friend just issued a book called “Unintended Consequences: Why Everything You’ve Been Told About the Economy Is Wrong." in which he argues that:

"for every dollar an investor gets, the public reaps up to $20 in value. This is crucial to his argument: he thinks it proves that we should all appreciate the vast wealth of others more, because we’re benefiting, proportionally, from it"

"In 2008 it was large pension funds, insurance companies and other huge institutional investors that withdrew in panic. Conard argues in retrospect that it was these withdrawals that led to the crisis — not, as so many others have argued, an orgy of irresponsible lending."

http://www.nytimes.com/2012/05/06/magazine/romneys-former-bain-partner-makes-a-case-for-inequality.html?pagewanted=all”

[barbra1971]

07:43 PM on 05/07/2012

He should be in business of fairy tales.

[babue]

06:05 PM on 05/08/2012

Like Bain gets $1 and ALL the rest of us get $20. well, yeah, why didnt he say something sooner. do we own them anything?

[Carl Wesley Clark]

08:43 AM on 05/09/2012

I love the way everyone acts like Bain is as big as Berkshire. I can assure you they don't have the clout the left would like to suggest. Not a boiler room, but certainly not 'too big to fail' either.

[nakedemperors]

03:38 PM on 05/07/2012

Dick Parsons, Citigroup's chairman on "why did shareholders reject the obscene compensation package for Pandit and other top Citigroup execs?"



Dick's answer was classic: He said it was "a communication problem."



http://www.thenakedemperor.com/oligarch/richard-parsons

[harveyr2]

03:34 PM on 05/07/2012

If you are outraged by executive pay then do NOT purchase mutual funds or ETFs as they vote for you and generally what is in the fund manager's best interest is not in your best interest. Instead, purchase stocks through a discount broker or free from many of the companies. Then vote your shares and make your voice heard. Otherwise, keep quiet.

[Rodger leMonde]

03:17 PM on 05/07/2012

The longest journey starts with a single step.

[williamina]

12:30 AM on 05/08/2012

where are we going

[Jen Celli]

03:04 PM on 05/07/2012

An 18% increase in pay is astounding. The average American employee sees an anemic 3% if they're lucky. That 3% isn't keeping pace with rising costs either. Pathetic.

[eric14]

02:54 PM on 05/07/2012

SCORECARD:
Democracy Nil.
Plutocrats: Won.

[barbra1971]

07:45 PM on 05/07/2012

Before death patient usually feels better for short time.

[eric14]

07:50 PM on 05/07/2012

Let Pluto be the god of the Plutocracy.