Wall Street executives are facing further scrutiny of their pay deals as governance crusaders push to beef up bonus “clawback” regimes.
Campaigning shareholders want JPMorgan Chase, Bank of America and Citigroup to toughen schemes that put senior bankers on the hook for future losses.
Details of clawback arrangements vary by bank, but at present bonuses can typically only be recouped if executives have acted fraudulently or are guilty of wilful misconduct.
The banks say they already have robust clawback schemes in place. BofA and Citi said the mooted overhaul would hurt their ability to attract and retain talent.
But critics complain the existing policies are ineffective and fail to do enough to curb excessive risk taking.
“Things have not got much better since 2008 and we could run into another 2008 again,” said John Chevedden, a private investor who put forward the proposal at Citigroup. “This is a way to send a strong message that banks have to act responsibly.”
He is working with fellow campaigner Kenneth Steiner. They are among the most prolific of the governance advocates who bring hundreds of proposals for debate at US shareholder meetings each year.
While they typically own only a very small stake, they have on occasion found support from larger investors, particularly on issues that improve boardroom accountability to shareholders.
Motions dictating pay policies have had limited success in the past, although a resolution demanding JPMorgan provide more details on when it claws back bonuses from executives attracted 44 per cent support last year.
JPMorgan subsequently set out an enhanced disclosure policy.
The chief executives of JPMorgan, Bank of America and Citigroup — Jamie Dimon, Brian Moynihan and Michael Corbat — received a combined pay package of almost $60m this year.
Under the activists’ plans, executives would effectively need to set aside a “substantial portion” of their overall remuneration for a decade.
Their pay could then be docked if it subsequently emerged that the bank broke the law and suffered a “monetary penalty” — “regardless of any determined responsibility by any individual officer”.
The banks fought unsuccessfully to persuade regulators that the motions should be left off the ballots. Their lawyers argued variously that the campaigners’ resolutions were unclear, inconsistent or failed to meet required standards.
But the Securities and Exchange Commission disagreed — paving the way for shareholder votes.
Robert Jackson, executive pay and corporate governance expert at Columbia Law School, said: “Despite the financial crisis there are still many financial institutions that do not have in place effective policies to claw back pay from bankers who’ve engaged in excessive risk taking or misconduct.”
However, David Larcker, professor at Stanford Graduate School of Business, said the proposals “seem way too general”.
“The problem is if you expand the scope of the clawback it’s going to make these executives really risk averse. And I don’t think that’s what shareholders are interested in.”
Bank of America and Citigroup confirmed in documents filed this week that their shareholders will be able to vote on the plans at meetings next month. JPMorgan has yet to file its proxy statement.
Citigroup said its “current clawback provisions and accompanying policies serve the same objectives as the proposal, cover a broader range of potential employee misbehaviour than those included in the proposal, and are better tailored to current regulatory and market conditions than the changes requested”.
Bank of America said: “We have already implemented comprehensive policies and programs to encourage long-term, sustainable performance and appropriate conduct consistent with the highest standards of risk management and legal compliance.”
JPMorgan said: “We maintain clawback/recoupment provisions on both cash incentives and equity awards, which enable us to reduce or cancel unvested awards and recover previously paid compensation in certain situations.
“Incentive awards are intended and expected to vest according to their terms, but strong recovery provisions permit recovery of incentive compensation awards in appropriate circumstances.”
不过，美国证券交易委员会(Securities and Exchange Commission)并不赞同这些理由，从而为股东就这些决议投票铺平了道路。