TARP Bank CEOs Cash In
So much for pay-for-performance reform. A new study by Presidio Pay Advisors, a San Francisco-based compensation consulting firm, looked closely at the 115 publicly traded banks’ compensation programs and found that while the bulk of them churned out negative shareholder returns and a boatload of losses, many of the senior executives have earned nifty pay hikes.
The study finds that about a third of the CEOs who held office from 2006 through the end of last year received increases in 2008 total cash compensation (base salary plus annual bonus); the increases ranged from 1% to 108% over 2006 levels, the study says. About 43% of CFOs got increases of up to 420% in the same period.
It's not as if pay gets docked when performance hits the skids. Rather, by all rights, bonuses and other incentive pay is supposed to reflect the CEO's effectiveness and should "decrease more for terrible performance than it should for merely mediocre performance relative to a defined group of peers." Makes sense, right?
About 80 CEOs from the 115 banks in question held the CEO position at the same bank for all three years. These 80 banks held a total of $7.5 trillion in assets as of December 31, 2008, and received a total of $134.6 billion in taxpayer investments from TARP.
Well clearly, that group turned out terrible results: aggregate profits of $119.3 billion in 2006 turned into an aggregate total loss of $19.3 billion in 2008. Yet the researchers found "no meaningful, statistically significant relationship between changes in pay and changes in performance from 2006 to 2008 among the 80 CEOs studied."
You could argue that bank executives who successfully navigated their institutions through financial crisis should get gold medals. But the real concern is that as a group, bank executives don't appear to making good on their promise to reform compensation schemes that incentivized the behaviors that got us into the current mess. Congress, which set conditions on the TARP money as noted here by Financial Reform Watch, will no doubt weigh in when they get a load of more results like these.