I mean trust banks to come up with a way around the pay caps as quickly as possible.
We already wrote about pay hikes at Morgan Stanley and Citigroup. But they were nothing to Wells Fargo’s little ruse revealed last week. A five hundred and twenty-two percent salary increase for the CEO, from $900,000 to $5,600,000 no less. But let’s pay it in stock so it’ll look good!
That didn’t fool anyone, not even for a nano second. Who do they think we are? Unsophisticated investors who can’t make informed decisions about Say on Pay votes?!
Three other senior execs at the bank also got similar pay rises… in stock… so you can bet your life that these are only the ones they were forced to tell us about and that there is a rash of it going on all through the organization. Check out the filing. They don’t even try to disguise it.
So, this stock thing? Why isn’t that a good thing?
Well, if you do a little stock research, that becomes clear too. Because the bank’s stock price used to be up in the $40s and now it’s down in the $20s and if taxpayer loans can help get it back up there, guess who makes out?
This is better known as a GUARANTEED BONUS, which our very own Nell Minow is fond of referring to as the biggest oxymoron in the world, and a subject that my old mate Eric Dash has recently been writing about in the New York Times. Everyone’s doing it. Citigroup, Bank of America, GMAC, Morgan Stanley, even AIG!
What they are doing is poaching. Poaching other banks' employees with offers of guaranteed bonuses. And everyone is poaching off everyone else, seemingly. Bank of America from Morgan Stanley and Morgan Stanley back off Bank of America and so on. Can’t they all just stay put and then the Treasury can have its money back? I mean, it’s not a strategy that even works. So-called star performers falter and peter out, turning into black holes, according to a BNET blog by Jeffrey Pfeffer, which quotes research from a Harvard Business School professor, Boris Groysberg. This research shows that if a “star trader” is headhunted, their performance suffers, and not just in the first year but over time as well, and the performance of the firm that did the headhunting also falters. No wonder they want guaranteed bonuses!
Distressingly enough, according to Eric, even Credit Suisse is doling out guaranteed bonuses. Credit Suisse! That seemed to be everyone’s white knight last week when Aaron Lucchetti (who was the first journalist ever to call me for comment in the U.S. incidentally) wrote about their toxic bonus plan in the Wall Street Journal. How that works is that some of the bankers get paid with shares in the toxic assets. Make money on those, and you get paid. Don’t, and you don’t. Now that’s what I call socially responsible investing. Simple enough and an utterly appropriate use of compensation strategy. So why do one thing smart and another dumb. Toxic asset bonuses/guaranteed bonuses. Right/wrong.
We can tell the difference.
And I’m pretty sure Mr. “Pay Czar” Feinberg can too.
Paul Hodgson — Senior Research Associate
