Executive Compensation and the Financial Crisis: A Problem In Search of a Solution (Still) (Part 4)

by J Robert Brown Jr. for The Race to the Bottom, December

During the crisis, some effort was made to change executive compensation practices.  TARP recipients were required to limit their bonuses to a percentage of salary, at least for top officials.  The limits did not include stock.  One possibility, therefore, was that the limits on bonuses would not reduce total compensation but would either result in increased stock awards or increased base salaries.

In fact, thats what occurred.  With respect to stock bonuses, the CII Study found:

  • in the tradition of unintended consequences for compensation regulations, while incentives were capped, salaries, which were not capped, ballooned. Wells Fargo, Citigroup and Bank of America exploited a loophole in ARRA to increase salaries by several hundred percent (salary hikes at Morgan Stanley, JPMorgan and Goldman Sachs were more moderate). In most cases, these salary increases were paid in the form of stock, which became known as salary stock. At Citigroup, salaries rose to between $3,333,333 and $5,333,333 for three named officers. At Bank of America, salaries rose to between $6 million and $9.9 million for four officers. And at Wells Fargo, salaries rose more than 500 percent, to between $3,339,156 and $5,600,000, for four officers, including CEO John Stumpf.  The number of shares paid as salary stock was generally calculated using the fair market value of the stock on the grant date or pay date for the relevant pay period. Such shares vested immediately. (continue reading… )

 

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