Bank salaries skyrocketing

Posted by Marc Hodak on August 6, 2009 under Executive compensation, Reporting on pay, Unintended consequences | 4 Comments to Read

Another bank, Wells Fargo, has decided that they, too, will not sacrifice competitiveness for the sake of making their politicians feel good;  they are dramatically raising salaries of their top executives:

“We must pay our senior people fairly,” said Melissa Murray, a Wells Fargo spokeswoman. “We are using stock to increase their salaries to keep the pay of these leaders closely tied to the success of the shareholder.”

Wells Fargo’s move illustrates the tricky mix of politics and government oversight that TARP recipients must navigate in running their businesses. Banks maintain that they must continue to offer competitive pay packages to avoid losing key talent. To do so, some are skirting rules designed to limit such pay.

The intent of the rules was certainly to limit such pay.  The companies are skirting the rules in the same way that an animal will skirt a trap designed to make it dinner.  Unfortunately, most readers are likely to interpret “skirting rules” as one of those nefarious things that dishonest business people do rather than the logical, predictable response of a market to ill-conceived regulations.

How much of an increase in salary did these silly rules induce?  Over a 600% increase, in this case:

The Wells Fargo board approved a new salary of $5.6 million for Mr. Stumpf, who was originally slated to earn $900,000 in base salary this year. Last year, Mr. Stumpf made more than $9 million, $7.9 million of which came in the form of stock options.

My favorite line of this article:

Elizabeth Warren, chairman of the Congressional Oversight Panel, which oversees TARP, declined to comment.

Indeed.