Bank Piggies

According to the New York Times, bank stocks and profits took a beating in 2011; but not their chief executives. Susanne Craig, “Bad Year for Wall St. Not Reflected in Chiefs’ Pay, New York Times, B-7 (January 20, 2012). Three big banks disclosed on Friday, January 20, 2012, that their top executives will receive massive awards of deferred stock for occupying their offices in 2011. You can talk about “Occupy” movements, but these pigs are not moving anywhere as long as they can wallow in their trough of money.

Banks are ramping up deferred stock awards to the top porkers while those further down th snorting order – those who really do the work – are finding their pickings are slimmer than a year ago. That does not mean that those excluded from the more succulent feeding bins are getting along on stems and seeds, but the banks’ boards could spread the loot more fairly.

Top executives’ pay packages are largely unrelated to stock performance. Corporate boards seem to think that the CEO should get the credit for a bank’s high profitability in good times, but “It’s the economy, Stupid” when a bank has a bad year. Boards of directors, unlike opposition politicians, are willing to assume that the bank would have been worse off if the CEO hadn’t done such a good job. Here are three hogs who can neither spell nor define “enough.”

Citigroup’s CEO, Vikram S. Pandit, sucked up $3.7 million in deferred stock in addition to his base salary of $1.75 million. As if $5.45 million is not enough for a piggie banker to live on, Mr. Pandit received a $16.7 million retention bonus, plus another $6.5 million in stock options. It is hard to justify such monstrous generosity to Mr. Pandit. Citigroup’s stock fell 44 percent in 2011, and bonuses for real employees amounted to chump change, if they received anything.

JPMorgan Chase, also had a rough year, with a 22% decline in share price. That did not restrain Chase’s board from slopping the chief executive, Jamie Dimon. He received $17 million in equity-linked stock for his work in 2010 and a similar amount for 2011.

Poor James P. Gorman of Morgan Stanley will take a 25% cut in his pay. Still, he will receive $9.7 in deferred compensation on top of his $800,000 base salary. He probably earned $8,000 of it.

Why are we ignoring the 1,200 lb. Yorksire boar in the room? It is bigger than the couch! The Yorkie being ignored is the fact that the upper echelons of corporate governance are not achieved through merit. Corporate CEOs and directors are appointed based on family and personal connections. It is nepotism and cronyism. See “Not All Pirates are in Somalia.”

We let these bank piggies loot their corporations and then give them favored tax treatment. While their paychecks are taxed as ordinary income, their immense awards of deferred stock end up as appreciation, not compensation and are taxed at the low, low capital gains tax rate.

It is an unfortunate fact that shareholders are sheep. As long as share prices stay reasonable and there are some dividends being paid, shareholders approve whatever corporate management puts on the proxy form. However, our economy would be healthier and those who do the work to keep the wheels of commerce turning would be better compensated if we no longer tolerated the current system of corporate governance based on banditry.


John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200
©2012 John B. Payne, Attorney

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