April 26

CEO Charles Scharf's pay was $21,350,906. Last year 42.2 percent of shareholders voted against CEO pay at Wells Fargo, largely for concerns that pay was not sufficiently aligned with performance. And in response the company raised his pay. That is too simplistic a narrative – the company did make some positive changes to its compensation plan -- but it is also factually accurate.

As the company put it, they “approved enhancements to our disclosure and several structural changes to our executive compensation program.” Specifically:

·         “Increased the weight of Performance Shares in the CEO’s equity mix to 65% with the remaining 35% in Restricted Share Rights (RSRs) (previously, split 50% / 50%)

·          Reintroduced relative Return on Tangible Common Equity (ROTCE) performance in our Performance Share design, weighted at 25% (previously, 100% absolute ROTCE)

·          Increased the target performance goal required for three year average absolute ROTCE performance to achieve a target payout or above

·          Re-evaluated the structure and rigor of TSR in the Performance Share Award (PSA) program; payouts will be adjusted upward by 20% if our TSR is at or above the 75th percentile and will be reduced by 20% if our TSR is below the 25th percentile, and there will be no upward adjustment if our absolute TSR is negative.”

Let’s look more closely at that last sentence. As I understand it, what Wells Fargo is saying is that they are committing to not giving an upward adjustment on bonus if the company is performing better than its peers, but all of them are losing shareholders money. This is not something to brag about. Of course there should be no upward adjustment to a bonus if shareholders are losing money. That should be obvious. Unfortunately, it does need to be stated explicitly. Also, it only highlights the potential for bonuses to receive a 20 percent upward adjustment if the TSR is barely positive.

Throughout the proxy statement the company attempts to justify the pay by identifying improved factors of performance to explain the increase, including improvements in revenue and net income. Wells Fargo customer satisfaction is critical for bank success. The increase in net income as a metric is a positive for the bank if it means it has created a product customer like, but not necessarily if it springs from higher fees. Or more fees. All of this of course happens in the context of Wells Fargo’s troubled history and on-going litigation.

ISS has recommended shareholders vote against the proposal according to Reuters, “ISS said changes the bank made then still left concerns, such as that financial accomplishments the bank highlighted for setting 2021 pay ‘are not entirely consistent with those highlighted in the prior year without specific rationale provided,’ according to its report.

ISS also called out Scharf’s $2.5 million salary, which I first wrote about when he was hired in 2020.