Following two consecutive years of pay gains, total compensation for the CEOs of large and midsize U.S. banks fell in 2023, as companies grappled with the fallout from last spring's banking crisis.
Median total direct compensation for banks' top executives declined 6.6% from the prior year, according to a data analysis conducted by the consulting firm Compensation Advisory Partners. That's in contrast with
The main culprit: a sharp decline in annual bonus payouts. Among the 53 banks that Compensation Advisory Partners included in its analysis, median bonus payouts for CEOs tumbled 30.3%.
Total direct compensation would have declined even further if bank boards hadn't taken certain actions to protect the bonuses, said Shaun Bisman, a partner at Compensation Advisory Partners.
Bonuses, which are usually tied to meeting specific financial goals, were at risk after the deposit run-driven failures of Silicon Valley Bank, Signature Bank and First Republic Bank forced many banks to quickly switch their focus from loan growth to attracting and retaining deposits.
In response, bank boards used more discretion — not quantitative measures — to determine CEOs' bonus payouts, or they tweaked bonus plan-related financial targets to help CEOs meet their goals.
"Companies set their incentive plan goals based on a different environment, but they had to pivot and change strategy," Bisman said. "So a lot of the bonuses that these companies set were down year over year because a lot of goals they set at the beginning of the year were not met."
Bonuses are one component of bank CEOs' yearly pay packages, which also include salary and long-term incentives. For 2023, median salaries for the 53 banks' CEOs rose 3.1%, almost unchanged from a 3% increase the previous year, while long-term incentives rose 3.9%, compared with a 6% rise in 2022.
An uptick in long-term incentives, which was driven in part by
"The competitive market data is generally leveling off," said Kelly Malafis, a founding partner of Compensation Advisory Partners. In addition, banks' financial performance was down in 2023, she noted, which affected bank boards' willingness to increase long-term incentive pay. Median earnings were down 12.4%, and net income was down 11%.
Last year's decreases in pay packages for bank CEOs ran counter to CEO compensation trends at public companies as a whole, said Josh Black, editor in chief of Diligent Market Intelligence, which provides data and insight on shareholder engagement, corporate governance and environmental, social and governance issues at public companies around the world.
Among S&P 500 companies, which include some banks, the average CEO pay package in 2023 rose 3.3% from 2022, while the average bank CEO pay package declined by 8.4% during the same period, according to data analyzed by Diligent Market Intelligence.
"I think that probably reflects that the [banking] sector in particular has had a tough year in the market," in part because of the profitability challenges of a high interest rate environment, Black said. "Non-banking companies may have … been more impervious to the interest rate rise."
Compensation Advisory Partners collected executive pay data from 60 banks as of the middle of April. Its analysis did not include data for seven banks — such as
Forty-one of the 53 banks, or about 80% of the group, reduced their CEOs' bonus payouts last year, according to the analysis. WaFd Bank in Seattle reported the single largest year-over-year decrease, with CEO Brent Beardall's bonus dropping to zero in 2023 from $1.3 million in 2022.
In its most recent proxy statement, WaFd said that its short-term incentive plan for named executives was based on achieving an earnings-per-share target of $4.27, but its EPS came in under that threshold. While Beardall did not receive a bonus, the board opted to give other named executive officers a 35% discretionary bonus because of the "extraordinary circumstances that occurred in the year," the proxy said. Those circumstances included Beardall's six-week-long medical leave stemming from
Beardall's total pay package was down 19% last year, though his long-term incentive award rose.
Other banks that reported steep declines in CEO bonus payouts include United Community Bank in Greenville, South Carolina, where H. Lynn Harton's bonus dropped by 66%; Dallas-based Comerica, where the bonus paid to Curtis Farmer fell by 62%; and Bank of Hawaii in Honolulu, where Peter Ho's annual bonus decreased by 70% year over year.
Ho received an "outstanding" score in areas such as leadership development, succession planning and strategic initiatives, according to the company's latest proxy statement. But his bonus was reduced from $2 million in 2022 to $600,000 last year because Bank of Hawaii's earnings per share, which largely determines bonus payouts, fell by 25%, the proxy said.
Proxy statements for United Community and Comerica show that the CEO bonuses at those banks were also reduced because the companies did not meet certain financial targets.
Banks with more than $100 billion of assets reported the smallest decrease in total compensation, according to Compensation Advisory Partners. Year over year, pay packages declined 1.5% for that group. Among banks with $50 billion to $100 million of assets, the decrease was more severe at 6.6%. Banks with $10 billion to $50 billion had the steepest decline of 8.1%.
Those smaller banks were "probably impacted the most" in shifting from making loans to collecting deposits, Malafis said.
Less than halfway through 2024, it's hard to predict which direction bank CEO pay packages will go this year. Interest rates, which remain high, will likely remain a factor in the profitability story. Stock prices at several regional banks are down year to date.
While 2024 may continue to be challenging and uncertain, banks have tools and options when it comes to rewarding executives with bonuses and long-term incentive pay, Malafis said.
"I think there's been a lot of lessons learned over the last several years that plans should be designed to allow for flexibility in the environment," she said.
