Strong stock performances and a surge in incentive pay last year fueled a sharp rise in total compensation paid to the CEOs of large and midsize U.S. banks.
Total direct compensation to bank chief executives was up 21.5% in 2021, versus a more modest 5% increase the previous year, according to an analysis that the consulting firm Compensation Advisory Partners conducted for American Banker.
Last year’s pay hikes came as stock prices were soaring in an economy recovering from the pandemic-induced shutdowns of 2020. The KBW Nasdaq Bank Index rose by almost 35% in 2021. And at nearly 60 banks whose financial results were reviewed by Compensation Advisory Partners, earnings per share rose by a median of 55.8%.
Higher stock prices and strong financial performances often lead to lucrative payouts for executives, according to executive compensation experts.
“This was the time to do it,” said Shaun Bisman, a principal at Compensation Advisory Partners. “Banks realized they were having a strong year.”
“Ultimately, shareholders want the company to be profitable,” he said. “Alignment with shareholders is stock price.”
The consulting firm used publicly available regulatory filings to analyze CEO pay trends at more than 50 banks. The banks ranged in size from JPMorgan Chase, which has $3.95 trillion of assets, to Cleveland-based TFS Financial, which has assets of $14.6 billion.
Total direct compensation includes not only salary, but also bonuses and long-term incentive pay.
Banks with more than $50 billion of assets increased total direct compensation to their CEOs by a median of 23.3%, the analysis found. At these larger banks, CEOs’ salaries were flat, but their long-term incentive pay rose by a median of 22.1%. And their bonuses climbed by a median of 47.4%.
At Cullen/Frost Bankers, a San Antonio-based bank which had one of the largest increases in bonus pay, CEO Phillip Green’s $1.16 million bonus was 411% larger than it was in 2020, which more than covered his 10% salary cut.
In Cullen/Frost’s most recent proxy statement, the bank reported that, for the first time in more than a decade, its compensation committee would exceed its policy to limit bonuses to 15% above annual incentive targets, which are based on an executive’s base salary. The committee stated that Green would be awarded a bonus 25% above his target due to his “effective leadership” and the company’s “strong net income.”
KeyCorp CEO Christopher Gorman received a $3.3 million bonus, which nearly doubled the $1.71 million he received the previous year. Gorman was No. 1 on the list of CEOs who received the biggest pay raises last year. His total direct compensation rose 64% to $11.5 million.
Gorman received the higher total payout after KeyCorp’s compensation committee “considered the strength” of his leadership and performance-related achievements during the pandemic, as well as his efforts to increase the bank’s diverse leadership representation, according to KeyCorp’s latest proxy statement.
Minneapolis-based U.S. Bancorp, which has $586.5 billion of assets, more than doubled the size of CEO Andy Cecere’s bonus. Cecere received a $1.95 million bonus in 2020, which rose by 133% to $4.54 million last year.
At certain other big banks, higher incentive pay came more in the form of long-term incentive compensation. For example, Bank of America CEO Brian Moynihan did not receive a bonus last year. But his long-term incentive pay rose by $7.5 million to $30.5 million, which drove a 31% boost to his total direct compensation.
At banks with less than $50 billion of assets, the CEO pay increases were somewhat more modest, but still substantial. Total direct compensation at those smaller banks climbed by a median 19.2% between 2020 and 2021, the analysis found. The increases were more a result of larger bonuses than either salary hikes or bigger long-term incentive pay packages.
The large increases in CEO compensation across the banking industry came partly in response to an unusually tight labor market, said Kelly Malafis, a founding partner at Compensation Advisory Partners.
“The economic rebound was stronger than expected, and there was a lot of competition for talent,” Malafis said. “Boards and management teams wanted to create stability and continuity in the strong labor market and economy.”
Lisa Edwards, president and chief operating officer of Diligent, which tracks compensation at Russell 3000 Index companies, said that as banks across the industry reported strong financial performances, the spike in CEO compensation was driven by pay increases at peer banks.
“If executive compensation is tagged to a percentile of peers as a target, and the target goes up, then everyone has to start increasing,” Edwards said.
Another trend in last year’s CEO pay data was a larger focus on tying compensation to progress on environmental, social and governance performance metrics.
Compensation to bank CEOs is increasingly being tied to progress toward meeting emissions-reduction goals, as well as to progress in achieving racial and gender pay equity. ESG metrics comprised 10% of the award component and 37% of the discretionary adjustment in banks’ annual incentive pay plans, the analysis found.
“This confirms momentum we’re seeing in this sector around improving representation, and showing accountability by including it in incentive plans,” Malafis said.
