Finance

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Bank of America Corp.'s brightening prospects have one major beneficiary: Chairman and CEO Brian Moynihan. 

Since 2010, a portion of Moynihan's compensation has been tied to future performance -- specifically, the stock's valuation and the bank's ability to achieve certain profitability targets over a particular period. Until now, he hasn't been entitled to the full amount because Bank of America didn't meet those objectives. But with the lender's performance poised to improve, he is getting closer to the point where he won't leave money on the table.

Per the terms of his 2014 compensation package, Moynihan can receive as much as $5.75 million in performance-based stock grants if Bank of America achieves an average return on assets of 0.8 percent and average growth of adjusted tangible book value of 8.5 percent in the three years ending this December. The bank is on track to meet that goal.

Pay Day?
Brian Moynihan is on course to cash in what could be the entirety of his performance-based stock awards
Source: Bloomberg
*He'll only earn the maximum amount available if the average three-year figure is 8.5%. From 2015 through 2016, it reached 9.1%, outpacing an average of 6.4% over his seven year tenure.

The same metrics apply to stock grants awarded in 2015 and 2016, worth as much as $7.25 million and $9.25 million, respectively (details of Moynihan's 2016 compensation were revealed Friday). Those, too, should pay out in full if U.S. economic growth plays out as expected. 

Moynihan has a better hand to play now that he's shored up the once-beleaguered Charlotte, North Carolina-based lender ahead of what could be a turning point for the industry. While the timing and details of a handful of promises made by President Donald Trump around loosening regulation, tax reform and infrastructure spending remain unknown and the frequency of future rate hikes is uncertain, there's little doubt the climate has turned more friendly for banks. 

In the Heights
Bank of America shares have nearly doubled over the past year, adding roughly $14 million to the value of CEO Brian Moynihan's existing holdings*
Source: Bloomberg
*Includes shares added to his position in the first quarter of 2016.

Investor optimism has propelled Bank of America's stock more than 45 percent higher since the election, making it the biggest beneficiary among large U.S. banks. Morgan Stanley analysts on Tuesday projected that in a best-case scenario, it could climb another 20 percent to $30 apiece -- a level it hasn't reached since since October 2008.

The bank's return on assets has improved noticeably, although it still trails rivals such as JPMorgan Chase & Co. and Wells Fargo & Co. which finished 2016 at 1.02 percent and 1.18 percent, respectively. 

Finally, It Has Happened to Me
Bank of America's return on assets has exceeded 0.8 percent for the first time since Brian Moynihan assumed the top job
Source: Bloomberg
*He'll only earn the maximum of his performance-based awards if the average three-year figure is 0.8% or more

As for its tangible book value, the bank's three-year average growth target of 8.5 percent looks like it'll be easily beaten: All that's needed to ensure that result is growth of 7.35 percent this year. 

If the bank hits both hurdles with ease in 2017, there's a strong case for upping the targets tied to future performance-based stock awards that Moynihan and other key executives receive. Enabling them to reap the rewards of past efforts is one thing, but creating a situation where they're earning more while doing less is one that should be avoided. Time to raise the bar?

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Still, this rally hasn't been enough to ensure that certain options held by top executives didn't expire worthless.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net