Will special bonuses for bank execs stir a hornet's nest?

Three large U.S. banks recently granted special bonuses to some of their top executives, part of an effort to hold onto talent and, in at least one case, ensure continuity of leadership.

Since late August, Truist Financial , KeyCorp and, most recently, Goldman Sachs have granted one-time stock awards to certain executives deemed by each company's board of directors to be mission-critical for future success. The bonuses range in size from $1.6 million to $80 million.

As the season of annual shareholder meetings approaches — a time when proxy advisory firms often spotlight executive compensation — at least one analyst is arguing that the special bonuses at two of those banks don't sufficiently reflect financial performance. Mike Mayo, an analyst at Wells Fargo Securities who's been skeptical about such awards for years, said in a research note last week that shareholders should vote against executive compensation proposals at each of the three banks.

"Annual meeting season is coming and the frequency of these 'double bonuses' (payments in addition to regular bonus) seems unprecedented" since the financial crisis, Mayo wrote. "Investors have the option to vote their views. … This can help to reject the status quo at the underperformers [Truist and KeyCorp] and keep a check on the board at [Goldman Sachs]."

Both Truist and KeyCorp have underperformed compared with their peers, Mayo said. Truist has fallen short of key profitability goals since it was formed in 2019, while KeyCorp struggled to hit its own earnings targets in 2023 and for much of 2024, and shareholder value has been diluted.

Proxy advisory firms such as Glass Lewis and Institutional Shareholder Services won't release recommendations on specific annual meeting proposals, including the nonbinding "say on pay" proposals in banks' proxy statements, until a few weeks before the meetings. But consultants who advise banks on executive compensation issues say there are plenty of reasons why compensation committees would choose to make this type of award now.

The list includes straightforward retention efforts driven by heightened market competition; a wish to restore some value to executives' stock holdings that may have declined in recent years due to external factors, such as high interest rates, that squeezed profit margins; and a need to ensure that a bank's current management team remains in place for several more years.

"I think this is not necessarily a new trend," said Laura Hay, a partner at Meridian Compensation Partners, who pointed to the $52.6 million retention-related bonus paid to JPMorgan Chase CEO Jamie Dimon in 2021. "But if you have somebody really valuable … you might have board committees or executives asking the question of, 'What are we doing to retain our people?'"

There's a risk in making such awards, including the potential of alienating shareholders. At JPMorgan's 2022 annual meeting, only 31% of shareholders supported pay packages for Dimon and other leaders. That was down from 90% who voted in favor of pay packages the previous year.

To date, just a few U.S. banks have publicly shared executive compensation information for their CEOs and other named executives. Most such filings usually come in March and April.

The one-time bonuses to executives at Truist, Key and Goldman Sachs are not part of those companies' most recent proxy statements. Truist was the first of the three to disclose special awards, saying in late August that it granted equity awards worth $4.5 million apiece to two members of its C-suite: Mike Maguire, chief financial officer since September 2022, and Dontá Wilson, chief consumer and small-business banking officer since November 2023.

The Charlotte, North Carolina-based company referred to the bonuses as "leadership awards" in an Aug. 30, 2024, regulatory filing, saying they were made "to support the retention of key leadership critical to taking full advantage of the business opportunities" created by last year's sale of Truist's insurance brokerage, which significantly increased Truist's capital levels.

Truist said the awards were "designed to place a specific emphasis on shareholder value creation while still incentivizing these executives to maintain appropriate levels of capital and appropriately manage risk." In addition, the size of the awards was determined by Maguire's and Wilson's "expected contribution to the success of the company, the holding power of [their] outstanding equity awards in an increasingly competitive environment, [their] total target direct compensation and [their] skill set and attractiveness in the market for talent."

Whether the two executives receive the full $4.5 million payout will depend on whether Truist achieves minimum capital requirements and shareholder return metrics over a three-year period ending Aug. 31, 2027, the filing said.

KeyCorp's bonuses were disclosed in a late-afternoon filing on New Year's Eve.

Chairman and CEO Chris Gorman and the company's other four named executives were granted a combined $16.7 million in performance-based equity that will vest in two years, as long as the Cleveland-based company meets certain capital requirements and earnings goals through Dec. 31, 2026. The bonus announcement came shortly after the successful completion of the Bank of Nova Scotia's minority-stake investment in Key.

The awards, which are separate from Key's long-term incentive compensation plans, are meant to boost stock ownership levels and "retain the talent the company needs to continue to generate and deliver long-term shareholder value from the Scotiabank deal," the filing said.

In a recent interview, Mayo noted that both the Truist and Key filings came before holidays.

"It doesn't look good," Mayo said. "Clearly, in my view, they were trying to slip this in."

KeyCorp declined to comment Friday on Mayo's latest research note calling for shareholders to vote "no" on executive pay. Truist did not immediately respond to a request for comment.

At Goldman Sachs, special bonuses in the form of restricted stock units were awarded in January to David Solomon, chairman and CEO, and John Waldron, president and chief operating officer, the investment bank disclosed in a regulatory filing. The awards, which are valued at $80 million each, have a five-year vesting period ending in January 2030 and require both men to maintain continuous employment at the company.

Compensation

KeyCorp CEO Gorman to receive $7.5M bonus after Scotiabank investment

Chris Gorman and four other high-ranking KeyCorp executives have been granted a combined $16.7 million in performance-based equity awards that will vest in two years, as long as the Cleveland-based company meets certain capital requirements and earnings goals.

By Allissa Kline

January 3

The awards "reflect the board's desire to retain [Solomon and Waldron] as a senior leadership team" and also to "sustain the strong momentum they have demonstrated in executing on firmwide strategic priorities, help ensure stability and continuity in senior leadership over the next five years and maintain a strong succession plan for the future of the firm," the filing said.

Both the Financial Times and the Wall Street Journal reported that Waldron, who has held his current titles since 2018, was being courted by asset management firms, including Apollo.

In a statement Friday to American Banker, Goldman Sachs defended the awards, saying: "The firm has delivered strong performance and the competition for our top talent has been especially fierce, including from asset managers and other non-banks. The board was determined to maintain our momentum, ensure stability, and keep in place a solid succession plan."

Part of Mayo's criticism is related to the timing of the one-time awards. They are being made outside of all three banks' annual compensation programs, he told American Banker.

"If the bonus is going to be extra, just say so," Mayo said. "But to have a special [filing] to have a bonus on top of a bonus seems counterproductive for shareholders. It sets a bad tone for the industry and it has the potential to taint the industry's image."

In addition to Truist, KeyCorp, Goldman and JPMorgan, other banks have granted one-time bonuses in recent years, including Morgan Stanley and PNC Financial Services Group.

Whether other banks follow suit in the coming year remains to be seen, said Jun Frank, global head of compensation and governance advisory at ISS Corporate, a subsidiary of Institutional Shareholder Services that provides advisory services to public companies.

"Sometimes there are market drivers that may create the need or perception that companies need to provide awards to retain these executives," Frank said.

Still, "you've got to have a real reason to make them," said Hay, the executive compensation consultant. "This is a tool in the toolbox, and when the current compensation program can't fit a specific situation, I think this is the way you're going to see additional compensation delivered."