Ameriprise Financial: How the Rich Get Richer
Annual meeting: April 27, 2022
Ameriprise Financial CEO James Cracchiolo had total reported compensation of $21,229,464, which included an annual bonus that increased 20 percent from the prior year. The real problem at Ameriprise, however, is what some have called option churning. The board keeps awarding Cracchiolo more shares, he continues to exercise and sell shares – severing the original alignment with shareholders they were designed to promote - and the company continues to give him more.
This assumption that were it not for continued awards Cracchiolo would lose his motivation is absurd on many levels. It is particularly irrational at a company where the CEO continues to sell exercised options and vested stock awards. In 2021, Cracchiolo realized $19,709,205 in value from exercising stock options and had shares vest worth $16,547,737. As of February 8, 2022 he owned outright 51.43% fewer shares than he had in 2017. In that earlier proxy statement it was reported that he had the right to acquire 701,084 shares. That number has gone down, because he did acquire those shares.
The theory that an executive will be more motivated toward excellence if his personal fortune is aligned with the fate of the company is debatable in general. But one can only even debate the issue with the proviso of share ownership, which is not the case here.
I’ve written about the company multiple times, including in 2018 and 2015 and always highlight the problematic nature of a phrase that continues to appear in each proxy statement: “The committee does not consider gains or losses from long-term and equity incentive awards made in prior years, such as stock option exercises and RSU vesting, in determining new incentive awards. The committee believes that reducing or limiting current stock option grants, RSUs 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.” Again, are shareholders truly to believe that if fewer shares were awarded Cracchiolo would scale back his efforts? If that is the case, is he the right person to be CEO?
One area of ownership that has gone up for Cracchiolo is his ownership of deferred shares. Here’s the exact language in the proxy statement: “Executives received a 25% Company matching contribution on deferrals of 2021 cash incentive awards (deferrals eligible for matching contributions are limited to 20% of such awards). The Company matching contributions are notionally credited to the Ameriprise Common Stock Fund, which tracks the performance of Ameriprise Financial common stock and are subject to a three-year cliff vesting period. The Company matching contributions will not be credited to deferral accounts until after December 31, 2021, and therefore are not included in the column ‘Aggregate Balance as of December 31, 2021.’” There’s a lot in there to unpack and too many proxies demanding my attention, but for now I will observe that matching contributions are a wonderful perquisite to offer employees to encourage those who may not otherwise adequately save for retirement to do so. Cracchiolo’s deferred compensation was valued at $94,399,865 as of December 31, 2021 (unclear why they don’t use the February date they used elsewhere in the proxy statement, though I have my hunches). He contributed more than any other executive.