Now that the outrage at Wall Street is fading and the ire of Congress is twisting toward public unions, banks are rewarding their leaders with big pay bumps.
Bloomberg Markets magazine reviewed CEO pay at the top 50 financial companies in the United States to see if executive pay lined up with market performance. Guess what, it doesn’t, in many cases, the top dogs earned more, even when their companies lost money.
Bank CEO pay jumped 26 percent in 2010 after two years of decline. That’s almost exactly the same as CEOs overall, according to a survey released last month by USA Today that found executives got an average pay raise of about 27 percent, while the rest of us barely edged out inflation with a 2 percent raise.
We had some reason to hope that the banking sector might not follow the broader trend since the economic wounds of the financial collapse are still so raw, many finance companies has required executives to forgo bonuses as a sign of good will in a tottering post-bailout economy. But apparently, that era of courteous restraint is over.
In some cases, it seems like CEOs are getting extra pay to make up for the bonuses and options they forfeited when the harsh spotlight demanded restraint.
Two bank executives saw their pay rise more than 10-fold. … JPMorgan Chase … paid CEO Jamie Dimon $20.8 million, an increase of 1,474 percent over 2009… Goldman Sachs Group Inc.’s board paid CEO Lloyd Blankfein $14.1 million, an increase of 1,276 percent from 2009… JPMorgan investors earned a total return for 2010 of 2.3 percent; Goldman Sachs, 0.5 percent.
According to Bloomberg Markets, pay rose even for when a company’s results weren’t so hot.
The big pay hikes for bank and asset management CEOs were awarded amid flat or sinking 2010 share prices. [Larry] Fink [the highest paid finance CEO of all, at BlackRock Capital], Blankfein, Dimon, Morgan Stanley CEO James Gorman and [Bryant] Moynihan of Bank of America all made Bloomberg Markets’ list of financial executives who provided the least shareholder value in 2010.
To see to full list of the U.S.’s Top 50 finance CEOs and find out who got a pay increase while their performance lagged, head to Bloomberg Markets.
In fairness though, CEOs shouldn’t get paid based on their performance in just one year alone. That would create all kinds of perverse incentives for short term thinking. It makes far more sense to tie executive compensation to the rolling average over a three or five year period. And for the economy overall, it makes the most sense of all to factor in metrics on environmental performance and average employee compensation.
But the latter two ideas there go against the legal mandate of publicly traded corporations to maximze shareholder value, something slowly being chipped away at by folks like B-Lab and their Benefit Corporation idea.
And lest you think this is a peculiarly American problem, a recent British report found that CEO pay is booming there too, adding to a long term widening of the wealth gap in the U.K. The organization that conducted the study, The High Pay Commission, released an interim report on executive pay in the U.K. earlier this month, with this frightening chart.
The goal of executive pay reformers isn’t to stop CEOs from earning a good salary, it’s to make sure they’re gains don’t come at the expense of the rest of us. It doesn’t have to be that way.
