When Bank of America announced this week that its CEO was getting a 7 percent cut in compensation for his performance in 2014, it might have caught some people by surprise.
|Moynihan (Photo: Davis Turner/Bloomberg)|
But 2014 was also a year that saw the bank's earnings drop 58 percent from the year before, as that $17 billion settlement took a big bite out of the bank's profitability. It was also a year in which the bank had to delay a long-awaited increase in its quarterly stock dividend because it miscalculated its capital ratios.
The details of Moynihan's total compensation for his 2014 performance were revealed late Tuesday. (He was awarded $13 million, $1 million less than the year before.) Since then, I've reached out to analysts and others for their take on why it fell.
Some suggested Moynihan's compensation cut is a reflection of the bank's stock price not rising faster. (The bank's stock price climbed 13 percent during 2014. But the closing price of $16.30 Wednesday is far below the peak price of $50 in 2006.)
Others suggested the lower compensation might have something to do with the bank's decision in October to name Moynihan chairman. In that move, the bank took away a rare victory for shareholders who voted in 2009 to split the CEO and chairman roles over the fallout from the bank’s handling of its Merrill Lynch purchase. The decision to give Moynihan the chairman post has been unpopular with some investors.
Here's a look at comments various sources emailed me when I asked them what they thought about Moynihan's drop in compensation. Some comments have been edited for brevity and clarity:
"I assume that this is being done to offset the promotion of Mr. Moynihan to chairman." -Dick Bove, analyst with Rafferty Capital Markets
"My view would be that it's in recognition of the fact that they had yet another tough year. It's not a huge cut, but indicates to me that they felt they had to do something. (Also, the chairman appointment) was a controversial move. Perhaps this is in reaction to the controversy." -Nancy Bush, independent bank analyst
"Given the stagnancy of the stock price I am not surprised at the compensation decision." -Charles Elson, finance professor at the University of Delaware
"The pay cut likely reflects the tougher year the company had. ... At the same time he was given $11.5M in stock grants, so if the bank executes well and profitability improves, he still ought to come out ahead." -Joe Morford, analyst with RBC Capital Markets
"We believe that the board and compensation committee should closely monitor executive pay at Bank of America to ensure that compensation is closely aligned with performance targets that focus on building shareholder value. ... While B of A's performance has improved over time, it still lags its peers in most important financial metrics." -Jonathan Finger, partner with Houston-based Finger Interests, which owns Bank of America shares