U.S. banking CEOs have enjoyed steady growth in their compensation packages over the last five years. However, industry experts told Insightia that the recent turmoil in the sector will likely hit these packages due to their dependence on performance metrics that many banks may struggle to deliver.

Average CEO realized pay at U.S. banks—both regional and banks that operate globally—have increased by 39% over the last five years, which is significantly higher than the 12.6% rise recorded for S&P 500 CEOs over the same period, according to Insightia’s Compensation module.

Increased scrutiny

Although pay packages have increased for U.S. bank CEOs, so has the level of shareholder opposition towards them, with an average of 14% votes cast against executive compensation last year in comparison to 7% in 2019, according to Insightia’s Voting module.

Such declining support could be attributed to “less patience and understanding for special one-time awards,” Bruce Kistler, managing director of Okapi Partners told Insightia. “That may have been due to investor fatigue around these awards earlier in the pandemic.”

Opposition by investors towards executive compensation has been “across all industries more generally,” not just the banking sector, according to Kistler.

“So, while it may be tempting to attribute this to something occurring at banks more specifically, it could also be tied to more general trends. For example, if you look at a few banks that had failed ‘say on pays’ in 2022, you will see a contributing factor was likely special one-time awards,” he added.

“There is a broad spread frustration with executive compensation, for good reason,” said Rosanna Landis Weaver, As You Sow director of wage justice and executive pay, in an email. “To me the question isn’t so much why the opposition now but why we didn’t see more opposition sooner.”

Turmoil

The recent crisis at mid-sized U.S. banks—which caused three to collapse last month—has already seen First Republic Bank’s CEO and other executives opt to forgo 2023 bonuses and other related pay.

A similar trend during the pandemic saw CEOs endure pay cuts, only for their packages to subsequently increase.

In 2020, average total realized pay for U.S. bank CEOs was $3.1 million, down from $4.1 million in 2019, according to Insightia Compensation data.

However, in 2021 the average total realized pay recovered, rising back up to $4.4 million, exceeding 2019 levels and continuing its pre-pandemic growth. The upward trend continued in 2022 with an 8.8% increase year-on-year.

The performance metrics bar

In early March, Silicon Valley Bank (SVB) saw customers pulling their deposits at the bank after it announced that falling bond prices meant it needed to sell assets to raise cash. As the bank’s funds depleted, panic wiped billions of dollars from other U.S. banks’ market values and saw both SVB and Signature Bank collapse.

SVB’s CEO saw his pay package grow 30% since 2018 and, along with other C-suite employees, collected bonuses days before regulators seized the failing bank.

President Biden said recently in a statement that: “When banks fail due to mismanagement and excessive risk taking, it should be easier for regulators to claw back compensation from executives, to impose civil penalties, and to ban executives from working in the banking industry again.”

“Congress must act to impose tougher penalties for senior bank executives whose mismanagement contributed to their institutions failing,” he continued.

Markets have since calmed, however, and shares in regional banks rallied on March 27. But First Republic Bank was one of the most effected, with its share price declining from a $147 year-to-date high to $13.73 per share at market close April 4, causing the CEO and other executives to forgo bonuses for this year. The decision was made “in light of the recent volatility in the banking system and its subsequent impact on First Republic Bank, and in order to foster closer alignment with the shareholder experience, and signal commitment,” the firm said in a March 22 filing.

“I always approach such commitments with a skeptical eye,” Landis Weaver told Insightia. “In this case, I have to wonder what the likelihood of actually earning the bonuses would have been given the bank’s recent history.”

“Pay for performance means you get paid less when performance is not as good. It is critical that we don’t act like executives are doing something incredibly noble here.”

Big bank 2022 pay packages

Citigroup Chief Executive Jane Fraser was the only big bank CEO to see their pay package increase last year, with the compensation committee setting total compensation at $24.5 million, up 9% from $22.5 million in 2021. The bulk of Fraser’s pay is linked to restricted stock units, which will ultimately be determined by the bank’s performance.

JPMorgan’s Jamie Dimon’s was set at $34.5 million, the highest sum awarded of the big banks, which was unchanged from 2021. Wells Fargo CEO Charlie Scharf was set at $24.5 million, also in line with 2021.

However, others in the sector saw their packages reduced. Morgan Stanley’s James Gorman pay was set down to $31.5 million last year, with Goldman Sachs’ David Solomon down to $25 million, both of whom pocketed $35 million in 2021. Bank of America’s Brian Moynihan also had his compensation shaved in the period from $32 million to $30 million.