Banks pare back retention pay for executives after pandemic-era spree

Fewer banks granted retention awards last year to help keep CEOs and other top executives in place, reflecting an economy that cooled after the early stages of the pandemic.

During the 2022 proxy season, more than a dozen large and midsize banks said they had doled out special prizes in a competitive labor market. But this year, only a small handful have reported that they made such awards, according to a recent analysis by the consulting firm Compensation Advisory Partners.

Of the 59 large and midsize banks included in the review, just four made retention awards to members of the C-suite — PNC Financial Services Group, UMB Financial, PacWest Bancorp and Commerce Bancshares. That’s down from 14 banks a year ago, the consulting firm found.

The decline likely reflects growing unease about a potential recession, said Shaun Bisman, a principal at Compensation Advisory Partners.

“There’s a lot of uncertainty about banks’ financial performance,” Bisman said. “So it’s less likely that they have a strong justification for granting these awards, given the economic uncertainty.”

Retention awards are one way that banks have enticed key employees to stay put in what has been a persistently hot job market. The large number of banks that made such rewards in 2021 was an indication that senior bank executives had job options during the first two years of the pandemic.

Last year’s pay data, which was reflected in the banks’ most recent disclosures, told a different story. While jobs are still plentiful, and the unemployment rate remains low, high inflation, rising interest rates and recent turmoil in the banking industry could lead to credit tightening and a slowdown in overall growth, which could lead to a recession.

“What it’s coming down to is the environment we’re in,” said Adam Eckels, founder and CEO of AJ Consultants, a Kingston, Pennsylvania-based executive search firm that works with banks, credit unions and fintechs. “On any given day, the market is up. On any given day, it’s down.”

The retention awards granted by PNC, UMB, PacWest and Commerce — none of which reported such awards during last year’s proxy season — ranged in value from approximately $250,000 to $10.8 million. They were granted in the form of time-based restricted stock units or performance-based stock units, with one award going to a CEO and the remainder going to other named executives.

At Pittsburgh-based PNC, “leadership continuity awards” went to three high-ranking executives in June 2022: Robert Reilly, the bank’s chief financial officer; Michael Lyons, its head of corporate and institutional banking and E. William Parsley III, its chief operating officer. 

The awards were designed to keep the executives in place “in a highly competitive environment,” and to ensure their ongoing support for CEO William Demchak “as he continues to execute PNC’s strategic priorities over the next several years,” according to the company’s most recent proxy statement. The awards, worth $5.5 million to $10.8 million, won’t pay out for five years. Any payments will be tied to PNC’s performance in comparison with its peer group.

Largely in response to the awards, the proxy advisory firm Glass Lewis recommended that PNC shareholders vote against the bank’s executive compensation program for 2022.

The recommendation appears to have persuaded some shareholders. At PNC’s annual meeting in April, 79.8% of them voted in favor of a nonbinding “say on pay” resolution in support of executive pay packages, down from 95.8% the previous year.

Last year, just 31% of JPMorgan Chase shareholders voted in favor of an advisory resolution expressing support for pay packages for Chairman and CEO Jamie Dimon and certain colleagues. 

Glass Lewis and another proxy advisory firm, Institutional Shareholder Services, both recommended that shareholders reject the bank’s advisory resolution, based on the fact that Dimon had received a one-time award of $52.6 million in stock options, while Daniel Pinto, the company’s chief operating officer, received $27.7 million in option awards.

Both awards were made with the goal of keeping Dimon and Pinto in place for several years.

This spring, in JPMorgan’s most recent proxy statement, the company said it won’t grant any future special awards to Dimon, and any one-time special awards that it makes to other executives must include direct performance conditions. The move appears to have pleased investors. At this year’s annual meeting, 89% of shareholders voted in favor of the “say on pay” resolution.

PNC had three objectives with its retention awards, according to a company spokesperson: Ensuring leadership continuity, increasing the bank’s ability to retain leaders “in a highly competitive environment” and building up the alignment between compensation and long-term shareholder value creation. The company did not provide comment about this year’s decline in shareholder support for executive compensation.

Meanwhile, Kansas City, Missouri-based UMB made two retention-related awards to named executives in July 2022. Shannon Johnson, the company’s chief administrative officer, and Nikki Newton, the president of private wealth management at UMB Bank, received equity awards of $401,800 and $403,594, respectively.

In its latest proxy statement, UMB said that it made the awards in order to “facilitate the company’s retention efforts and to help reinforce long-term succession needs.”

Commerce Bancshares, also based in Kansas City, Missouri, granted an award of $250,000 to Robert Holmes for “his performance and for retention purposes,” according to the company’s 2023 proxy statement. Holmes is chairman and CEO of Commerce Bank of St. Louis, a subsidiary, as well as an executive vice president of the holding company.

At Los Angeles-based PacWest, a retention award made to CEO Paul Taylor was a bit different from the other awards reported this proxy season. Taylor, who was hired as president in June 2022 and became CEO in January 2023, was granted time- and performance-based restricted stock units valued at a combined $3.4 million, the company disclosed in its most recent proxy statement.

The equity awards “were designed to encourage and incentivize” Taylor, who was “not planning to return to executive service,” to join PacWest, the company said in the proxy statement. A former PacWest board member, Taylor took over as CEO from Matt Wagner, who retired after more than two decades at the helm.

“Say on pay” resolutions passed easily this spring at UMB, Commerce and PacWest.

PacWest is one of several banks whose stock price tumbled this spring amid the banking turmoil that unfolded when Silicon Valley Bank failed in mid-March. The company, which lost about $6 billion of deposits over the course of a few weeks, had already announced a new strategic plan under Taylor. Since the onset of the crisis, PacWest has announced plans to speed up the timing of some business realignments in order to cut costs and reduce the size of its balance sheet.

Similar to last year’s awards, the number of banks granting retention awards to top-ranking executives will probably remain low this year due to the economic outlook, said Kelly Malafis, a founding partner of Compensation Advisory Partners. It remains to be seen whether there will be an impact from the turmoil that unfolded after Silicon Valley Bank collapsed, she added.

Still, none of those factors mean that banks will set aside retention awards entirely, Malafis said.

“We could see companies doing something special, either for really key talent or in certain areas of the bank” that continue to be challenging from a recruitment standpoint, such as digital and cybersecurity, said Malafis. She noted that such awards are not required to be publicly reported, except to named executive officers. 

And when the economic cycle changes again, it’s likely that such awards to members of the C-suite will return, Eckels said.

“At some point … these types of bonuses and year-end payouts that raise eyebrows will come back,” he said. “It’s not the end of them forever. It’s just the end of them for now.”

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