Annual meeting: April 24
The news April 20, that Wells Fargo will be fined a billion dollars for abuses in its mortgage and insurance industries comes just four days before the annual meeting. I often write about how improperly designed and monitored incentives can lead executives to short-term or risk-taking choices contrary to long-term shareholder interests. In the case of Wells Fargo, it was it was front line employees that took such incentive-motivated inappropriate actions that result in material financial losses.
Shareholders at the April 24 meeting will vote on a proposal, submitted by the New York State Common Retirement Fund, which gets to the crux of these concerns.
Specifically, the proposal calls for the board to prepare a report on:
(1) whether the Company has identified employees or positions, individually or as part of a group, who are eligible to receive incentive-based compensation that is tied to metrics that could have the ability to expose Wells Fargo to possible material losses, as determined in accordance with generally accepted accounting principles; (2) if the Company has not made such an identification, an explanation of why it has not done so; and (3) if the Company has made such an identification, the:
(a) methodology and criteria used to make such identification;
(b) number of those employees/positions, broken down by division;
(c) aggregate percentage of compensation, broken down by division, paid to those employees/positions that constitutes incentive-based compensation; and
(d) aggregate percentage of such incentive-based compensation that is dependent on (i) short-term, and (ii) long-term performance metrics, in each case as may be defined by Wells Fargo and with an explanation of such metrics.
Typically when companies under the level of scrutiny Wells Fargo faces receive such a shareholder proposal they engage with the proponent seeking, and often finding, a compromise. This proposal strikes me as one that it would have been worth simply adopting. One certainly hopes that these issues are being studied within the company given the extent of past losses, and presumably such research could be relatively easily tailored to a report for shareholders.
Individual shareholder Jing Zhao has also filed a proposal which calls on the company to recommend that Wells Fargo "engage multiple outside independent experts or resources from the general public to reform its executive compensation policy with social responsibilities." One of the points Zhao raises is the wide ratio between CEO pay and that of average worker. Pay ratio is now disclosed. At Wells Fargo the company says that CEO pay of $17,564,014 is 271 times that of a median employee, who the company estimates makes $60,000. Of note, the median pay of an employee at Wells Fargo is considerably lower than that of peer company Bank of America where median pay is $87,000, a significant difference,
I wrote about executive compensation at the company in 2016 and 2017 and many of the concerns I’ve raised in the past – particularly about excessive salary – remain valid. This year shareholders have additional opportunities to express their concern through votes on these proposals.