Banks get pushback on executive compensation packages

Bloomberg

At least four large U.S. banks are facing pushback from proxy advisory firms as well as a shareholder group over compensation packages recently bestowed upon top executives.

Institutional Shareholder Services, a leading proxy advisory firm, is urging shareholders of Goldman Sachs , Bank of America and Truist Financial to vote "no" on the ratification of 2024 pay packages awarded to named executive officers at those companies.

Glass Lewis, another leading proxy advisory firm, is also recommending a "no" vote at Goldman Sachs, while SOC Investment Group is advising shareholders of Wells Fargo to vote against pay packages for executives at that bank.

The recommendations are being made as banks gear up for their annual shareholder meetings, where shareholders will vote on certain proposals, including banks' nonbinding "say on pay" resolutions that are put forth each year. All four of the banks facing pressure on executive pay will conduct their meetings later this month.

"Say on pay" resolutions in the banking world almost always receive majority shareholder approval. One of the more recent high-profile exceptions was the 2022 rebuke of JPMorgan Chase CEO Jamie Dimon's pay package for 2021, which included a one-time award of $52.6 million in stock options. That year, just 31% of shareholders voted in favor of the bank's pay packages. In response, JPMorgan said it would no longer grant future special awards to Dimon.

This year, part of the pushback at Goldman and Truist involves the structure of special, one-time stock awards. At Goldman, CEO David Solomon and President and COO John Waldron were awarded restricted stock units — valued at $80 million each — as part of a retention effort that requires both men to maintain continuous employment with the firm.

At Truist, Mike Maguire, chief financial officer, and Dontá Wilson, chief consumer and small business banking officer, received leadership retention awards worth $4.5 million apiece. In addition to the bonuses, ISS said it is also concerned about Truist's new short-term incentive structure, saying it went from a largely formulaic program to a scorecard "which ultimately appears discretionary."

Truist did not immediately respond to requests for comment.

Goldman and Truist have previously laid out their rationale for those awards, saying the bonuses are necessary to keep key executives in place.

ISS characterized the Goldman awards as "problematic," while Glass Lewis called them "excessive."

In a recent report, ISS said there are "significant concerns surrounding the magnitude and structure of off-cycle retention [restricted stock units]" and noted that the $80 million-valued award is twice the amount of Solomon's nearly $40 million annual pay package for 2024. The firm also said the awards "lack rigorous, pre-set performance criteria" and were granted while previously awarded off-cycle performance-based equity awards remain outstanding.

Similarly, Glass Lewis in its own report criticized the size of the awards and said Goldman's rationale for the awards "is far from robust." It also said they differ from the company's historical use of performance-based equity awards.

"While more fulsome disclosure may be provided in next year's proxy statement, the absence of any disclosure surrounding these elements of such a substantial award is egregious and, on that basis alone, would warrant a vote against this proposal this year," Glass Lewis said.

Goldman Sachs defended its actions. In a statement, it said: "Competition for our talent is fierce. The board took action to retain our current leadership team, to sustain our firm's momentum and maintain a strong succession plan. A 100% stock based grant is fully aligned with long-term shareholder value creation."

For Bank of America, ISS said in a separate report that it is recommending a vote against executive compensation due to the structure and disclosures of the company's short-term incentive determination plan. According to ISS, Bank of America's award determinations are "ultimately discretionary" and its proxy statement "lacks related key disclosures, such as target and maximum pay opportunities, metric/category weightings" and other key measures.

Bank of America declined to comment on ISS' report. In its latest proxy statement, it said its compensation and human capital committee takes a thorough approach to evaluating named executive officers' performance and subsequent compensation. That approach includes factors such as performance metrics and scorecards, including company and lines of business performance, as well as market pay practices and governance, the proxy said.

Glass Lewis, unlike ISS, is recommending a vote in favor of Truist's and Bank of America's pay packages.

Meanwhile, the shareholder group SOC Investment Group has turned its focus to Wells Fargo. The group, which works with union-affiliated pension funds to enhance shareholder returns, is basing its recommendation to vote "no" on Wells' pay packages on the argument that Wells' financial performance, excluding stock price improvement, is "stagnant" and therefore doesn't warrant significant pay increases.

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In a recent letter to Wells Fargo shareholders, SOC Investment Group wrote that although Wells' share price "performed well during 2024, all other indicators including both adjusted and nonadjusted financial metrics on which the Human Resources Committee relies to assess company and executive performance show stagnation and decline." The group also noted that while Wells has made progress in getting out from under longtime regulatory limitations, its asset cap remains.

SOC Investment Group called out CEO Charlie Scharf's 2024 pay package of $30.3 million, which rose year over year, and said the company's method for determining executive compensation was flawed.

"As we dug into compensation and the explanation for why the board was providing big increases in pay, we were really unpersuaded," Richard Clayton, a research director for SOC Investment Group, told American Banker. "Just looking at how they handled compensation … the method they described isn't one that, in our analysis, really justifies the raises they've been giving."

In an email, a Wells spokesperson defended the executive compensation decisions, saying the San Francisco-based company "delivered strong performance" in 2024, improved its earnings capacity and increased capital return to shareholders. It also grew net income and continued to trim expenses, while making "continued progress in strengthening the company's risk and control infrastructure."

Wells, which has been hampered by regulatory issues since its 2016 fake-accounts scandal, has shed five regulatory consent orders this year. The $1.9 trillion-asset bank is operating under three remaining orders, including the asset cap imposed on it in 2018.

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Last year, 94% of Wells' shareholders voted in favor of the company's 2023 pay packages.

Even if Wells' "say on pay" resolution passes later this month, SOC Investment Group's recommendation to vote against it could generate momentum in coming years. Generally, proposals that receive 10% or more of shareholder disapproval become a focus for boards and investors, Clayton said.

"Very commonly, the board will introduce changes that will be responsive to shareholder concerns," he said. "If they don't, they almost always see a larger 'no' vote the next time around."