CEO pay a mixed bag following a year of volatility in pandemic

CEO pay at the largest publicly traded money managers and banks with asset management units was a mixed bag in 2020, as financial institutions responded to the pandemic and new volatility in the market, according to an annual analysis of proxy statements by Pensions & Investments.

For the 11 institutions analyzed by P&I, as many CEOs saw pay increases as saw decreases. That there were decreases at all may come as a surprise to investors in bank and money manager stocks who have participated in a significant rally over the past several months. Bank stocks took big losses at the start of the pandemic but quickly rebounded as earnings improved on the back of increased trading revenue.

In a recent research note, New York-based Deutsche Bank AG analyst Matt O'Connor suggested that bank stocks could climb another 30%-50% on the "catch-up" trade — catch-up meaning what they lost in the pandemic — but it may not translate directly to big increases in CEO pay. Proxy statements for 2020 highlight a variety of transitions happening within executive management and banks themselves which could keep compensation mixed over the near term.

CEO compensation rose at J.P. Morgan Chase & Co.; Morgan Stanley; BlackRock Inc.; T. Rowe Price Group Inc. and State Street Corp. This group also reflects the highest stock performers within the 11 institutions analyzed. On the whole, these institutions maintained positive share price performance and in some cases engaged accretive mergers and acquisitions activity during the pandemic.

The most significant increase in CEO pay was for BlackRock's Chairman and CEO Laurence D. "Larry" Fink, whose total compensation rose to $29.85 million in 2020, an 18.2% increase from $25.25 million in the prior year, according to the company's proxy statement.

At T. Rowe Price, CEO William J. Stromberg saw a 5.1% raise to $15.34 million from $14.59 million in 2019. In its proxy statement, T. Rowe Price said that the increase was the result of the asset manager performing well despite the pandemic.

James P. Gorman, CEO of Morgan Stanley, also saw an uptick in pay to $33 million from $31.6 million last year. In its proxy statement, Morgan Stanley said that Mr. Gorman has led "transformational change" over the past year. Morgan Stanley beat performance expectations for 2020 and completed acquisitions of E-Trade Financial Corp. and Eaton Vance Corp., which have increased its overall footprint within the financial services industry. The company's share price increased by 34% in 2020, and its market value increased by 52% to $124 billion. Ratings agency Moody's Investors Service Inc. also raised Morgan Stanley's credit rating to A1, the highest among its banking peers.

Not everyone had a positive story to tell coming out of the pandemic, however. CEOs saw pay cuts at Goldman Sachs Group Inc.; Wells Fargo & Co.; Invesco Ltd.; The Bank of New York Mellon Corp. and Northern Trust Corp. For this group, the rebound in share prices happened later in the year in 2020 and other headwinds also diminished CEO pay.

The biggest cuts happened at Goldman Sachs and Wells Fargo.

At Wells Fargo, CEO Charles W. Scharf, who was previously the highest-paid bank CEO in the country, saw his 2020 pay decline to $20.3 million from $34.3 million in 2019. In its proxy statement, Wells said that the company failed to meet many of its internal goals as a result of the pandemic. Mr. Scharf's pay is tied to meeting those goals.

Goldman Sachs CEO David Solomon was paid $17.5 million in 2020, down from $24.7 million in 2019. Mr. Solomon's initial compensation determination was $27.5 million, which would have been an increase. However, the company assessed a $10 million penalty deducted from executive compensation as a result of Goldman Sachs' management involvement in the Malaysian 1MDB scandal.

Invesco's CEO Martin Flanagan took a cut in compensation last year, bringing his 2020 pay to $10.31 million down from $11.5 million. Invesco cited pandemic-related challenges and "only partially meeting our goals" for 2020 as reasons for the decline.

Two of the top 12 firms tracked saw changes in executive management in 2020. BNY Mellon moved to make Thomas Gibbons CEO in March of 2020. Mr. Gibbons had been acting CEO since 2019, following transition within the executive management at BNY Mellon.

Franklin Resources Inc. also changed CEOs in 2020. Jennifer Johnson took over leadership of the asset manager in February of 2020. Not only did she come in moments before the pandemic, she also oversaw Franklin Templeton's acquisition of Legg Mason Inc. — a $4.5 billion dollar deal that more than doubled Franklin Templeton's AUM to approximately $1.5 trillion. Ms. Johnson has been with Franklin Templeton since 1988.

While the outlook for financial institutions is generally positive for the rest of this year and heading into next, there are some challenges ahead for CEOs. Many proxy statements noted 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, discussion around pay metrics will likely continue.

"There's a bigger discussion around what metrics to use and what the targets should be," says Amanda Walters, a New York-based principal at money management consultant Casey Quirk, a practice of Deloitte Consulting LLP. "Some institutions are looking at new targets around DEI (diversity, equity and inclusion) as well as ESG. Those are metrics that could impact the discretionary pay CEOs receive." Ms. Walters adds that CEO pay is likely to continue to increase, especially if banks are able to rebound along with the rest of the economy. But whether those increases will be significant or incremental remains to be seen.

Pay ratios, the rate at which CEO pay is larger than median employee pay, also ended 2020 somewhat mixed. Banks opted to reward frontline workers for a challenging time during the pandemic. That, combined with cuts in CEO pay at some institutions, meant that ratios dropped in some cases.

BNY Mellon had the largest drop going to 121:1 in 2020 from 213:1 in 2019. Invesco and Morgan Stanley followed: Invesco's pay ratio dropped to 78:1 in 2020 from 92:1 in 2019; and Morgan Stanley's fell to 234:1 in 2020 from 248:1 in 2019.

The biggest increase was Northern Trust, which climbed to 135:1 in 2020, up from 123:1 in 2019. For the other institutions in the cohort, pay ratios increased marginally, with J.P. Morgan's, for example, increasing to 395:1 in 2020, up from 393:1 in 2019 — in line with CEO Jamie Dimon's compensation increase.