Bank Shareholders' Executive Pay Revolt No Match For Big Returns

So Much For Shareholder Revolt

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.

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