How January's Stock Rout Could Make Wall Street CEOs Even Richer

  • Cheaper equities prices mean more shares in award packages
  • Citigroup's Corbat got biggest boost from market slump

As the Standard & Poor’s 500 Index got off to its worst-ever start to a year, there was a silver lining for the leaders of the biggest U.S. banks.

Every January and February, the titans of American finance find out how much they’re getting paid. And every year, bank boards settle on a fixed dollar figure for executive stock awards. To determine how many shares that is, each bank tracks its stock price for a period of time -- anywhere from one day to 10 -- and divides the fixed dollar value by an average price. Higher stock prices yield fewer shares. Lower prices mean more.

Citigroup Inc., for example, granted shares to Chief Executive Officer Mike Corbat on Feb. 16 as part of his compensation for 2015. The bank’s board had decided to award Corbat stock worth $9 million. Citigroup tracked its closing price on each day during the second week of February to derive the number of shares -- the same method it used during each of the past three years. This year, that also happened to be when Citigroup shares bottomed out.

Citigroup’s average closing stock price for that period was $37.05, compared with $52.29 in the week before Dec. 31. That means Corbat received about 70,000 more shares than he would have if Citigroup tracked and granted the award before the slump.

On a percentage basis, Corbat’s slump premium was the greatest among big-bank CEOs who have been awarded shares so far this year, mainly because his were granted the latest as stocks continued to decline.

Brian Moynihan of Bank of America Corp. received about 300,000 more shares in his $14.5 million equity package than he would have on Dec. 31. James Gorman at Morgan Stanley got about 38,000 more as part of his $4.64 million equity award, while Goldman Sachs Group Inc.’s Lloyd Blankfein was awarded about 15,000 more in his $14.7 million package. JPMorgan Chase & Co.’s Jamie Dimon received about 49,000 more shares as part of his $20.5 million package.

Wells Fargo & Co. CEO John Stumpf hasn’t yet received his shares. He’s been granted equity in late February and early March in each of the past two years.

Dollar Targets

To be sure, all of the executives hold more shares in their companies than they were awarded this year, and the total value of their holdings declined during the January rout. Still, the additional shares could prove to be a boon if prices rise. And at many banks, employees may be in a similar position -- collecting more restricted stock as part of their annual bonuses at relatively low valuations.

While the boards of big banks all set dollar-price targets for equity awards, some companies determine grants based on the number of shares. Alan Johnson, managing director of compensation consulting firm Johnson Associates, said he prefers a dollar target because setting a unit target could mean runaway compensation if a stock explodes in value.

“It works reasonably well, so long as you do it at the same time every year,” Johnson said. “Some people will say ‘My god, they’re getting a break, getting a low price,’ but that assumes there’s some kind of normal price.”

Spokesmen for the five Wall Street banks that have awarded shares this year declined to comment beyond the companies’ filings.

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