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WSJ: Megabank CEO Pay Not Tied To Performance

Monopoly Man - Rich BankerIn the Captain Obvious category this week is The Wall Street Journal article, “CEO Pay: Bank Size Trumps Results.” Research has proven what everyone already knew, “size has been the key driver of bank executive compensation.” Maybe, just maybe, this has something to do with the 71% of Americans who think the big banks haven’t made up for their role in the financial crisis, and the 66% who are still flat-out angry at them.1

To be clear, the research conducted by Keefe, Bruyette & Woods Inc. only compared super-megabanks (dubbed “globally systemic) to relatively modest megabanks (which are merely “domestically systemic”). In this comparison:

  • Super-megas have seen total returns rise by a median 38% since the end of 2009, while their CEOs have earned a median total pay of $57 million.
  • Regula ‘ol megas have seen total returns rise by more than 100%, while their CEOs have only earned a median total pay of $35 million.

(We hope you read the “only” with the same dripping sarcasm with which we wrote it.)

It would be interesting to extend the research to include community banks and credit unions. Clearly the sheer numbers would be so different it wouldn’t be an apples-to-apples kinda thing. But other measures could lead us to the same well. Like how many times greater is the CEO’s pay than their tellers’. Or compared to their average account holders’ or investors’ pay instead. Or surely some numbers whiz can formulate some ratio between earnings per share and CEO pay divided by number of shares. Or something like that.

But really, we already know what the results would be. So in the name of corporate efficiency, let’s just cancel that study and use our time for something more valuable. Perfecting your Robin Leach meme comes to mind.

In all fairness, there is validity to a leader of a larger, more complex, more challenging company receiving greater compensation than a leader of a smaller, less complex organization. But it’s a matter of degree. Oh, and the juxtaposition with these fellas’ role (some would say criminal role) in the collapse of our economy.

 

JPMorganChase CEO Jamie Dimon has a lot to cheers about. (Photo by Jed Egan) JPMorgan Chase CEO Jamie Dimon has a lot to cheers about. (Photo by Jed Egan)

 

If you’re an investor, there is another legitimate (and less sarcastic) concern: “The real issue is whether the current system pushes those executives to do the right thing when it comes to strategy.”

As the Journal astutely points out, the CEO clearly benefits by expanding their bank’s assets, regardless if it diminishes value for the shareholder. Likewise, spinning off certain business units (as the market would like Citigroup to do) would result in a big crimp on the CEO’s lifestyle.

Not that he’d have to forgo caviar for breakfast or anything. But, surely he’d suffer some unacceptable level of inconvenience that comes with the paltry earnings of $35 million.

 

1Consumer Banking Insights Study, conducted by Harris Poll Interactive, December 2013

 

Tags: Industry