Ameriprise Financial

Proxy published: March 20, 2015 Annual meeting: April 29, 2015

The $24,455,192 reported in the summary compensation table as total disclosed compensation for Ameriprise CEO James Cracchiolo represents only a portion of the amount he took home. Much larger figures can be found in the table titled Option Exercises and Stock Vested in 2014, with realized gains of over $80 million. At the same time, Cracchiolo’s total ownership at the end of FY 2014 was less than at the end of 2013.  According to the stock ownership table he owned 150,000 less shares despite the million shares of options exercised.

As we noted in our report on overpaid CEOs in the S&P 500, Ameriprise’s proxy statement published in 2014 states that the compensation “committee does not consider gains or losses from long-term and equity incentive awards made in prior years, such as stock option exercises and restricted stock vesting, in determining new incentive awards. The committee believes that reducing or limiting current stock option grants, restricted stock awards or other forms of compensation because of prior gains realized by an executive officer would unfairly penalize the officer for high past performance and reduce the motivation for continued high achievement.” The identical language appears in the current proxy.

Apparently this fear of motivation loss has been going on for a long time. A look back shows that a version of this phrase has appeared in the proxy for many years, despite changing circumstances.  In 2014 alone, Cracchiolo exercised over a million shares and recognized over $70 million in value.  He apparently did not keep these shares.  The Ameriprise proxy is a great example of the problem with repeating language in the proxy every year. The rote language that the committee uses, appeared in the proxy published in 2009 with an addendum, “It should be noted that the named executive officers have not realized any gains on options awarded since spin off, and that these outstanding options do not currently have any intrinsic value or market gain as of the end of fiscal year 2008.”

That sentence was taken out in 2010 the sentence and replace with,  “In fact, many of these outstanding vested options do not currently have any intrinsic value or market gain as of the end of fiscal year 2009.”

Over the past several years, the intrinsic value increased markedly, and well beyond original estimates. This phenomena is widespread as options given at the bottom of the market now provide great wealth, and was covered in a March 25 Reuter’s analysis.  Options can create windfalls for executives based on market forces they do not control.  Ameriprise option grants from 2008 had strike price of $52.86, the options granted in 2009 had a strike price of $21.34 cents. This obviously reflects the financial crisis. The grant date fair value of the 1,028,000 shares awarded in 2009 was $9.1 million. What were those options ultimately worth? To fully understand how much Cracchiolo has received in from cashing out equity over the years would require a careful analysis of Form 4s, as well as the stock holding table.  What shareholders are able to more easily ascertain is that the equity compensation paid by the company is excessive.

The continuous equity awards do not create alignment, nor are they long term focused (in fact at Ameriprise, they are unusually short term, with three year vesting periods of 33% each year.)  Yet in 2014, Cracchiolo received yet another option grant of shares valued at over $4 million, and awards of another $4 million.  Apparently the board continues to fear a loss of motivation.