Mastercard
June 22, 2021
Ajay Banga, former Mastercard CEO, received a total compensation of $27,774,448 in 2020. On January 1, Michael Miebach became CEO, though Banga will remain an executive chairman. According to the proxy statement, Banga’s salary will be unchanged despite the diminishment of his responsibilities. That may be an issue shareholders object to next year. Regardless, there are additional concerns for compensation in 2020.
Notably, Banga’s compensation increased by 19% – a high increase in any year, but a truly remarkable one given the company’s performance in 2020. As noted in an article by Banking Dive, “Mastercard’s 2020 annual revenue declined 9.4% to $15.3 billion, compared with 2019, and its net income slid 21% to $6.4 billion.”
The article also quotes extensively from ISS’ report on the company that recommends a vote against the compensation package, such as:
“Half of the annual incentive payout continues to be based on a subjective assessment of individual performance and there are significant concerns regarding COVID-related compensation adjustments.”
“Although some investors have expressed a degree of flexibility regarding adjustments to short-term awards, adjustments to (2018) closing-cycle equity awards are not viewed as an appropriate reaction to COVID-related disruptions.”
On June 10, presumably after ISS published its report, Mastercard submitted an additional filing with the SEC to defend its compensation program. In its justification, the company wrote that “COVID-19 created unprecedented circumstances which rendered our pre-established performance goals obsolete based on business factors outside of management’s control - namely, the decrease in Personal Consumption Expenditure (PCE) and cross-border travel due to the pandemic.”
I have said it many times this proxy season: COVID-19 happened to everyone. Executives don’t need special financial protection from its effects. While Mastercard sought to “mitigate the effects of the pandemic that were beyond employee control,” I have yet to read a proxy statement where a company mitigates the beneficial effects from factors beyond its control such as tax law changes or a strong stock market. Thus, Mastercard’s compensation adjustments seem to be more about increasing executive payouts rather than providing appropriate pay.
It should be noted that many boards appropriately responded to the pandemic by not adjusting compensation metrics. As Banking Dive points out, many executives of peer group companies actually saw pay decrease in 2020. If those like Mastercard, which made inappropriate compensation changes, do not receive strong opposition from their shareholders, it perversely punishes those companies who did the right thing. While the company cites “unprecedented circumstances” as rationale to change compensation, it should be argued that every year – to varying degrees – is unprecedented. This is likely to become even truer with the materializing effects of climate change. CEO salaries alone are more than enough to compensate them for their duties, which happen to include adjustment to changing circumstances. As such, many shareholders are likely to vote against this package.