Last year, BB&T CEO Kelly King made $12.7 million — 150 times as much as median employee pay at his bank. Those are some big numbers for a firm that stands to benefit from a senate bill being advertised as regulatory relief for small community banks.
The core of the bill is a provision to eliminate most of the risk controls at banks that have $50 billion to $250 billion in assets. While not as gargantuan as the likes of JPMorgan Chase or Bank of America, they include 25 of the 38 biggest banks in the country, including BB&T, which ranks 16th. A final vote on the legislation could come in the next week.
Removing risk controls from banks that award massive executive pay packages shows just how little was learned from the 2008 crisis. Don’t any of this bill’s supporters remember Countrywide Financial, for heaven’s sake? That bank would’ve fallen into this mid-size range. And yet Countrywide CEO Angelo Mozilo played an over-sized role in driving the subprime-mortgage craze.
And what drove Mozilo’s dangerous behavior? Gee, could it have had anything to do with the more than half a billion dollars he raked in before the bubble burst?
In the wake of that disaster, the Dodd-Frank financial reform law included several executive compensation provisions designed to curb this type of reckless greed. While several have not yet been implemented, one is just now beginning to bear fruit in the form of new data on CEO-worker pay gaps.
All large U.S. publicly held corporations are now required to report the ratio between their CEO and median worker pay in their annual proxy statements. The size of these gaps is one indicator of excessive compensation that can encourage risky behavior.
Just three of the more than two dozen banks that would benefit from the senate bill have reported their pay ratios so far. But the numbers make clear these are hardly Mom and Pop operations.
Just behind BB&T’s CEO-worker pay ratio of 150-to-1 ratio was Fifth Third, with a gap of 145-to-1. The nation’s 29th-largest bank had median worker pay of $60,078, while CEO Greg D. Carmichael made $8.7 million last year. At M&T (ranked the 36th-largest bank in the country), CEO Robert Wilmers made $4.2 million, 72 times the $57,571 in annual compensation of the bank’s median employee.
Stock-based pay makes up the majority of each of these three CEOs’ compensation packages. And so if they can jack up the value of their company’s shares, their paychecks will also expand. Having such massive jackpots sitting on the table, with little or no downside risk, gives bank executives a powerful incentive to make outrageous gambles that put us all in danger.
At Bear Stearns, for example, the top five executives used high-risk investments in mortgage-backed securities to inflate the value of their stock grants to $1.1 billion before the firm went down in flames, setting off the meltdown that eventually threw millions of homeowners into foreclosure.
While the firms that stand to benefit from the senate bill are not as big as Bear Stearns was at the height of the bubble, they clearly pose serious risks to taxpayers and our broader economy. According to Americans for Financial Reform, these same banks received almost $50 billion in federal bailout money after the 2008 crash.
And don’t be fooled by arguments that bankers learned their lessons from that crisis. A 2015 University of Notre Dame survey of more than 1,200 bankers found that a quarter of them would break the law in order to make an extra $10 million. A full 32 percent of those with less than 10 years’ experience would take the same risk.
We need to do much more to crack down on Wall Street pay — starting with the Dodd-Frank ban on compensation that encourages inappropriate risk. Nearly eight years after passage of this financial reform law, this ban has still not been implemented.
The last thing we need is to weaken oversight over overpaid banking executives.
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