Cognitive dissonance in the remuneration of bonuses

Resentment boils at Bank of America over a proposed change in the institution’s bonus structure, Bloomberg reported on Saturday.

The bank overturned a decision to institute a ‘cliffs acquisition’ on an allotment of company shares that it granted as part of their compensation in 2020 to investment bankers and traders who made $ 1 million. dollars or more, the news service reported, citing anonymous sources. The provision would have required these employees to stay in the bank until 2024 to get their 2020 bonuses.

The policy change “didn’t work the way some people wanted it to, so we fixed it,” Brian Moynihan, CEO of Bank of America. says Bloomberg in a TV interview at the end of last month.

However, these acquisition restrictions would remain in effect for employees of investment and commercial banks, which are part of the same division as investment bankers.

And they don’t apply to the bank’s so-called “rule of 60”. Bank of America had let staff retire with all deferred wages if their age and a minimum of 10 years in the business were 60.

Several Wall Street banks are clinging to a more of their windfall earnings This year. JPMorgan Chase investment banking employees, on average, see a 1% increase despite a 22% increase in revenue per employee. For Goldman Sachs, these figures are 2% and 15% respectively. As recently as December, these banks discussed increasing their bonus pool for sales and trading. up to 20%, although they saw their income increase by 48% and 49%, respectively.

Bank of America, by comparison, planned to maintain its bonus level from last year, despite a 20% increase in bank revenue in the first nine months of 2020.

“You have to pay for the performance, and the shareholder has to benefit as well,” Moynihan told Bloomberg TV in January.

And the bank’s net income applicable to common shareholders experienced a 36.6% drop in 2020, compared to the previous year, the bank having tripled its provisions for loan losses.

Still, the bank is working with $ 10 billion to $ 11 billion for the 2020 incentive pay, according to Bloomberg. And here’s where math could benefit from another perspective.

Bonus pools for banks in the UK are much lower than their counterparts in the US, Sky News reported on Saturday. NatWest is cutting its allocation for staff bonuses by about a third – to £ 200million ($ 273.9million). NatWest total income for 2020 is estimated at £ 10.8 billion ($ 14.8 billion). By comparison, Bank of America’s total revenue in 2020 is $ 85.5 billion, or 5.8 times more.

If Bank of America worked with the same prorated bonus allocation as NatWest, its bonus pool would be $ 1.6 billion. The low end of Bank of America’s 2020 pool is 6.25 times that amount.

NatWest is hardly an outlier. Lloyds would remove bonuses altogether. HSBC’s bonus pool would be significantly lower for 2020 than it was in 2019.

And the dissonant calculation extends to senior executives from one side of the Atlantic to the other. Barclays, for example, are planning to give CEO Jes Staley a bonus that could reach £ 800,000 ($ 1.1 million). In comparison, JPMorgan Chase CEO Jamie Dimon’s bonus for 2020 is $ 5 million. Goldman Sachs CEO David Solomon is $ 4.65 million. Charlie Scharf from Wells Fargo arrives $ 4.4 million in bonus cash. And Morgan Stanley’s James Gorman is receiving over $ 7.8 million.

Bank of America has yet to release Moynihan’s compensation figures for 2020. Many of the bank’s executives would have faced pay cuts, Bloomberg sources said, but for the pay cuts and new pay structure. controversial acquisition.

One would guess that criticism over bonuses from America’s second-largest bank – including the different treatment of corporate and commercial bankers and their cohorts of investment banks – would only intensify. once Bank of America places a value on its figurehead.

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