Some four years after the financial crisis, many are still feeling the ill effects. But big bank executives are not among this unfortunate group, compensation data shows.
The executives who headed financial institutions in those uncertain times of early 2009, when markets and banks were being supported by the federal government, are now in line to receive windfall compensation in the hundreds of millions of dollars.
What did they do to deserve such a reward? It's hard to justify and it goes a long way toward explaining the persistent anger toward Wall Street. And we have the government partly to blame for it.
A large part of the reason is simply lucky timing.
In the depths of the financial crisis in 2008 and 20009, when the Standard & Poor's 500-stock index was touching below 700, bank executives were granted millions in options and stock incentives valued at incredibly low stock prices. The banks were encouraged to offer this compensation because o f the restrictions in the Troubled Asset Relief Program, which in many circumstances prohibited the payment of bonuses other than in long-term restricted stock. As a result, companies awarded more equity than they otherwise would have at the time.
Since then, the stock market has returned to near the level it was before the financial crisis, making those options and stock very valuable.
To determine how large the windfall is, I asked Equilar, an executive compensation data firm, to compile the value of stock and options granted to the top five executives at each of the 18 largest American financial institutions - those that underwent stress tests in those years. (Ally Bank also received a stress test but was excluded because it was not public at the time). I also asked Equilar to determine what the packages were worth now, assuming the executives had held on to the stock and options.
It's a stupendous amount.
The top executives at those 18 financial i nstitutions received an aggregate of $142 million in stock and options from July 1, 2008, to June 30, 2009. It was a lot then, but these stock and options are now worth $457 million, an increase of $330 million, or 221 percent. On average, that is roughly $4 million per executive who received such compensation.
Individually, some of the gains are even more breathtaking. Take American Express and its chief executive, Kenneth I. Chenault. In 2007, before the financial crisis, American Express was trading for years at $50 to $60. Then the crisis hit, and in six months the stock fell below $10 a share.
In January 2009, American Express granted its top five executives stock options with a strike price of $16.71, which Equilar values at $7.63 million. According to American Express's public disclosure, Mr. Chenault received the largest grant of 1,196,888 options.
American Express stock is now back to about $57 a share. And that equity package is up 1,097 percent a nd valued at $91.36 million. Mr. Chenault's option package alone is now valued at almost $50 million.
That's a nice payday. Can anyone argue that it is owed to the executive's performance rather than to a recovery in the stock market?
American Express did not respond to requests for comment.
The biggest dollar winners are the executives of Capital One. According to Equilar, the credit card company's top five executives received an incentive pay package granted in 2009 valued at $19.9 million. The package is now worth $114 million. The reason for the huge compensation package: Capital One's options were granted at a price of $18.28 during the financial crisis. . Yet, Capital One's stock price is trading at almost $60 a share, below its precrisis price of around $80.
A Capital One spokesman said that the compensation was justified because Capital One “delivered solid results in 2009.†The spokesman added that Equilar's figures did not account for th e fact that some Capital One executives had already exercised their options. According to Capital One, if these exercises were taken into account, the package's value would be $87 million instead, still a fantastic amount.
All told, eight of these 18 firms, including Wells Fargo and SunTrust banks, gave executive pay packages during the financial crisis that are now more than 200 percent higher in value. Four of these financial institutions - BB&T, U.S. Bancorp, Capital One and American Express - awarded pay packages that are up more than 400 percent. Almost all of this value is attributable simply to the stock market's recovery.
And some of these packages reward what frankly appears to be poor performance. The top five executives of Fifth Third Bancorp received a pay package that is now 253 percent higher in value despite Fifth Third's stock being about a third its precrisis value.
How could this happen, you may ask?
The bank executives who stood to make the most were those who were paid more in options than in stock. Options provide greater gains when the stock goes up and so are increasingly in disfavor. For example, Equilar calculates that the options granted to the Capital One executives are up 838 percent, or almost $70 million, while the stock component is up only 212 percent, or about $25 million. You won't be surprised to hear that American Express's total 2009 incentive compensation was paid all in options.
Another explanation is that many of the financial institutions did not adjust the dollar amount of their financial compensation paid that year to take into account the stock market drop. In other words, the banks paid the same dollar amounts but had to grant more options and stock to meet this number because of the low price.
If you are shaking your head, you should know that these numbers are only for the top five executives at these companies. Lower-ranked employees who received equity compensa tion, which is largely undisclosed, may have also received such a windfall.
Indeed, The New York Times reported in 2010 that the partners and employees of Goldman Sachs had received a substantial equity grant of 36 million stock options during the financial crisis. And of course, this excess compensation was awarded at many other, smaller banks.
Taken together, this is a sobering view of executive compensation. It shows how compensation can have little to do with performance and more with stock market movements and the luck of having options granted instead of less valuable stock. More tellingly, it also shows how the government most likely enriched financial executives by pushing banks to award more equity compensation through TARP than they otherwise would have.
The sad thing is that these executives were compensated not because of the work they did at their firms, but because of a lucky rise in the stock market. It is anything but pay for performance. An d yes, if the financial crisis had not occurred, they were likely to have been much poorer otherwise. It's no wonder Main Street is still seething.
Equilar Analysis of 18 TARP Bank Equity Grants JPMorgan Chase plans to disclose part of the total losses on a bungled trade.
| Includes all grants made between July 1, 2008 and June 30, 2009. | ||||||||
| Capital One Financial | ||||||||
| $114,142,199 | $19,937,974 | 472% | $77,875,140 | $8,298,897 | 838% | $36,267,059 | $11,639,077 | 2 12% |
| American Express | ||||||||
| 91,360,635 | 7,632,486 | 1,097 | 91,360,635 | 7,632,486 | 1,097 | â€" | â€" | n/a |
| PNC Financial Services | ||||||||
| 68,817,278 | 20,842,433 | 230 | 54,474,868 | 13,861,096 | 293 | 14,342,410 | 6,981,337 | 105 |
| Wells Fargo | ||||||||
| 32,199,370 | 8,972,088 | 259 | 17,468,325 | 3,441,590 | 408 | 14,731,045 | 5,530,498 | 166 |
| SunTrust | ||||||||
| 29,325,385 | 8,465,869 | 246 | 24,264,019 | 6,843,223 | 255 | 5,061,366 | 1,622,646 | 212 |
| Regions Financial Corp. | ||||||||
| 22,133,383 | 9,564,120 | 131 | 8,953,001 | 3,607,602 | 148 | 13,180,382 | 5,956,518 | 121 |
| BB&T | ||||||||
| 17,345,986 | 3,127,347 | 455 | 11,803,836 | 1,883,669 | 527 | 5,542,150 | 1,243,678 | 346 |
| U.S. Bancorp | ||||||||
| 16,099,591 | 2,775,000 | 480 | 16,099,591 | 2,775,000 | 480 | â€" | â€" | n/a |
| JPMorgan Chase | ||||||||
| 15,553,876 | 7,450,000 | 109 | â€" | â€" | n/a | 15,553,876 | 7,450,000 | 109 |
| Bank of New York Mellon | ||||||||
| 13,792,147 | 11,885,005 | 16 | 5,915,846 | 5,665,420 | 4 | 7,876,300 | 6,219,585 | 27 |
| Bank of America | ||||||||
| 12,519,196 | 20,000,008 | -37 | â€" | â€" | n/a | 12,519,196 | 20,000,008 | -37 |
| KeyCorp | ||||||||
| 10,902,463 | 12,475,708 | -13 | 5,245,500 | 6,373,250 | -18 | 5,656,963 | 6,102,458 | -7 |
| MetLife | ||||||||
| 9,254,130 | 6,880,440 | 34 | 9,254,130 | 6,880 ,440 | 34 | â€" | â€" | n/a |
| Fifth Third Bancorp | ||||||||
| 3,406,700 | 963,800 | 253 | â€" | â€" | n/a | 3,406,700 | 963,800 | 253 |
| Citigroup | ||||||||
| â€" | 1,268,149 | -100 | â€" | 1,268,149 | -100 | â€" | â€" | n/a |
| Goldman Sachs | ||||||||
| â€" | â€" | n/a | â€" | â€" | n/a | â€" | â€" | n/a |
| State Street | ||||||||
| â€" | â€" | n/a | â€" | â€" | n/a | â€" | â€" | n/a |
| Morgan Stanley | ||||||||
| â€" | â€" | n/a | â€" | â€" | n/a | â€" | â€" | n/a |
| Total | ||||||||
| $456,852,337 | $142,240,427 | 221% | $322,714,891 | $68,530,822 | 371% | $134,137,446 | $73,709,605 | 82% |
