The “Say on Pay” movement has been gaining ground over the past year, thanks to investor activism and the high-profile defeat of the pay package offered by Citigroup at last year’s annual stockholders’ meeting. Since then, big banks have been paying more attention to the link between the institution’s performance and the compensation awarded its executives.
The latest to bow to investor pressure is Bank of America , which recently announced some changes that it believes will answer shareholders’ demands to tie the interests of the bank’s officers to that of the bank itself.
Incentives designed to discourage risk
According to Reuters, the new rules revolve around stock options, requiring most officers to hold a portion of their shares until retirement. For CEO Brian Moynihan, some of his stock must now be held until after one year following his retirement. Previously, Moynihan had to hang on only until he retired, while other execs had no restrictions whatever.
This change was being pushed by investor activists, who feel that the new parameters will help suppress reckless behavior in the management ranks if executives have a direct interest in avoiding risks that could harm the bottom line.
Though this shows a willingness to smooth investors’ ruffled feathers, it is notable that Bank of America tried to scuttle the idea at first, claiming that it already had a plan in place. A rejection by the Securities and Exchange Commission nudged management in the right direction, however, and this updated pay plan will appear on the bank’s upcoming proxy statement.
Other banks have felt the pressure, as well
Financial overhaul laws make it difficult for banks to ignore shareholder proposals on issues such as pay, board composition, and breaking itself up to bolster investor value. For example, Citi was recently allowed by the SEC to skip an item for its annual meeting asking shareholders about breaking up the bank -- but only because it was too vague.
Then, of course, there is the issue of JPMorgan Chase’s CEO Jamie Dimon, whose pay was trimmed last year because of the trading fiasco known as the London Whale. Although Dimon’s total compensation fell only 19% to $18.7 million in 2012 from $23 million the previous year, the action represents a slap for allowing risky behavior to negatively impact the company.
Even though banks are being forced to listen to shareholders, changes are happening, and they are pushing big banks in a positive direction. For investors, who have often had to fight to have their concerns acknowledged, the new climate is a real win. For banks, yes, they really are listening – even if it is because they have to.
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