CEO pays a mixed bag after year of volatility in pandemic
While the outlook for financial institutions is generally positive for the remainder of the year and into the next, there are challenges for CEOs. Numerous proxy statements have highlighted the difficulty of matching performance metrics to the reality of volatile market environments, such as that which occurred at the onset of the pandemic. Even if volatility normalizes, the discussion on compensation metrics will likely continue.
“There is a larger discussion about what metrics to use and what goals to achieve,” says Amanda Walters, New York-based strategic advisor in the investment management industry at Casey Quirk, a practice of Deloitte Consulting LLP. “Some institutions are considering new goals for DCI (diversity, equity and inclusion) as well as ESG. These are parameters that could have an impact on the discretionary compensation that CEOs receive.” Ms. Walters adds that CEO pay is likely to continue to rise, especially if banks manage to bounce back with the rest of the economy. But it remains to be seen whether these increases will be significant or gradual.
Compensation ratios, the rate at which CEO pay is higher than median employee compensation, also ended 2020 somewhat mixed. Banks have chosen to reward frontline workers for a difficult time during the pandemic. This, combined with reductions in CEO compensation at some institutions, has resulted in lower ratios in some cases.
BNY Mellon had the biggest drop to 121: 1 in 2020 from 213: 1 in 2019. Invesco and Morgan Stanley followed: Invesco’s pay ratio fell to 78: 1 in 2020 from 92: 1 in 2019 ; and Morgan Stanley fell to 234: 1 in 2020 from 248: 1 in 2019.
The biggest increase was Northern Trust, which climbed to 135: 1 in 2020, from 123: 1 in 2019. For the other institutions in the cohort, pay ratios edged up, with JP Morgan, for example, dropping to 395: 1 in 2020, up from 393: 1 in 2019 – in line with the increase in CEO Jamie Dimon’s compensation.