Wells Fargo
Annual Meeting: April 25, 2015 When it was first announced that Wells Fargo would not be giving bonuses to the named executive officers this year journalists praised the board. It was seen as a sign of accountability in response to widespread consumer fraud charges. That scandal, spurred in part by an incentive-based corporate culture, resulted in a $185 million settlement with the Consumer Financial Protection Bureau, and in the departure of over 5,000 employees, including a few senior executives.
In response to the outcry, the board has taken some steps to limit payouts, particularly for departed CEO John Stumpf.
However, Wells Fargo still has extraordinarily high executive compensation. The actions taken do not go far enough to restore investor trust. President and CEO Timothy Sloan’s pay package grew 17% from last year to $13 million. Sloan did not receive a bonus this year, but the value of his stock award increased from $8 million to $10.5 million. The increase is more than double the $1 million non-equity incentive compensation award he received last year.
It is true that if the company fails to meet performance criteria those performance shares may be worth less than estimated, but they may also be worth more. The footnotes on the summary compensation table note that at the 150% of target award Sloan would receive 327,444 performance shares with a current value of $15,750,056.
In addition, Sloan has a hefty salary. In March of 2016, when he was promoted to president, Sloan’s salary was increased from $2 million to $2.4 million. As we noted in our analysis then, this was not only extremely high for a president of a company but was higher than that of the vast majority of CEOs of similarly sized companies.
Compensation is only one issue shareholders will vote on at the upcoming annual meeting. The Sisters of St. Francis of Philadelphia and sixteen co-filers have filed a proposal urging the company to report on the root causes of the fraudulent activity and steps taken to improve risk management and control process. Other proposal topics include a call for a report on lobbying; a proposal on gender equity; one on breaking up the bank; and, finally, one calling for adoption of an Indigenous People’s Rights Policy spurred by Wells’ funding of the Dakota Access Pipeline.
For many years to come, Wells Fargo will be held up as an example of impacts of poorly designed incentive plans and the very real impacts of reputational damage. The full extent of the damage is unknown, but it is likely that the Wells Fargo annual shareholder meeting will likely be one of the most interesting of 2017.