Tone-Deaf Wells Fargo Gives Senior Execs Fat Pay Raise
Even golden bankers can have a tin ear. Wells Fargo said today that four senior executives are getting a hefty raise in their annual income:
- CEO John Stumpf, whose base pay is $900,000, will collect an additional $4.7 million in stock per year - David Hoyt, head of wholesale banking ($700K base), will get $3.1 million in stock - Mark Oman, head of the home and consumer finance division ($600K base), will receive $3.2 million in stock - Howard Atkins ($700K base) will receive an additional $2.6 million in stock
Set aside for a moment whether these guys deserve a raise. Does Wells have no fear of further stoking public anger by sweetening its executive compensation at a time of rising unemployment and diminishing real income? Is the company, which received $25 billion under the Treasury Department's Troubled Asset Relief Program, really so blasé about legislation wending its way through Congress that would give federal regulators say on pay? Or perhaps it's that the U.S. government's implicit guarantee of the "too big to fail" set gives big financial players room to roam even on hot-button issues.
Consider how Wells justifies its pay raise. In the announcement the company points to what it calls a "consistent ability to grow revenue, market share, net income and profitability over the short and long term," along with the need to retain key personnel.
Thing is, Wells hasn't shown "consistent" growth over the long-term (I'm not sure what it means to be consistent over the short-term.) Take return on equity, a common measure of corporate performance. Between 2003 and 2007, the company's ROE ranged from 19.5% to 17.2%. Clearly, that's an excellent return, and it's evidence of Wells' generally competent leadership. But all the big banks were producing fat returns during these salad years, and the fact is that Wells' ROE was flat to down -- not up -- during that five-year period. Not surprisingly, over the last couple years ROE at the company has nosedived, plunging to 3.6% in 2006. As sharp as Wells' leadership might be, in other words, they weren't sharp enough to steer clear of trouble.
Let's also look at profits, since Wells mentions it. The company's net income rose in 2004 from the previous year, fell in 2005, rose in 2006, fell in 2007. Hardly the consistent earnings growth Wells claims. After these undulations, Wells now makes roughly $1 billion less per year than it earned five years ago. Other metrics show similar lumpiness. Revenues are up some years, down others. Same goes for earnings per share and rates of revenue growth. And, for that matter, for its percentage of non-performing loans, a measure of asset quality.
That's no sin. Companies have good years and bad, bobbing in the economic surf. But in an era when banks say they're eager to regain public trust, it's bad form -- or something worse -- to rationalize big pay raises by prettying financial performance.
Wells also justifies the salary increase by saying that it puts its executive comp in line with that of management at other banks. What banks might those be -- Citigroup and Merrill Lynch, which in 2008 collectively paid out nearly $9 billion in bonuses despite losing $54 billion, while also requiring an infusion of $55 billion from taxpayers?
If so, then Wells is correct in saying it has some catching up to do. According to a report issued last week by New York State Attorney General Andrew Cuomo, Wells paid out $977 million in bonuses last year, while losing nearly $43 billion (including results from its purchase of Wachovia). Although those bonuses were less than what most of its larger peers offered, as a percentage of profit Wells' comp in 2008 exceeded that of several more profitable competitors, coming in at roughly 487% of net income. That topped pay levels at JP Morgan Chase (405.8%) and even the ultra-remunerated pin-stripers at Goldman Sachs (470.8%).
When Stumpf and other bankers met with President Obama in March in a move to ease tension over the bank bailout, the Wells exec reportedly said that "we're all in this together." If only that were so.
Image courtesy of Flickr user Ebaycoach; charts courtesy of the Office of the New York State Attorney General and Capital IQ