When eight of the highest-ranking executive in a major bank have their cash bonuses withheld for a year, and equity awards granted previously slashed in half, you might be tempted to say, “Gosh, I'm sure they did nothing wrong.” In the case of Wells Fargo, you would be correct.
On Wednesday, the troubled bank announced that it would give its executives a combined $32 million less in bonuses for 2016, Wells Fargo's worst year in memory. But from what we can gather from the company announcement, the action has nothing to do with any specific wrongdoing – say, fostering an environment where systemic fraud was not only tolerated but required for continued employment – but just because the compensation committee just kinda felt like it.
“These compensation actions for the Operating Committee, though not related to any findings of improper behavior, are part of the Board's ongoing efforts to promote accountability and ensure Wells Fargo puts customer interests first,” board Chairman Stephen Sanger said in the statement. “The Board is taking decisive actions.”
So if no improper behavior was found, why deprive these poor innocent executives of their hard-earned cash? According to the statement, the decision was “based on the accountability of all those in senior management for the overall operational and reputation risk of the company.” In other words, the C-suite allowed a reputation-destroying sickness to spread across the bank, but did nothing “improper.”
The clawbacks don't come as a huge surprise; the Wall Street Journal reported last month that bad news was coming for Tim Sloan and co: “Wells Fargo & Co.’s board is likely to eliminate annual bonuses for 2016 for some top executives following the bank’s sales-practices scandal, according to people familiar with the matter.”
The headlines and the Wells Fargo announcement itself make it sound like executives will be left with only their measly seven-figure base salaries to take home to their families. But cash bonuses make up a small part of the overall compensation picture at Wells Fargo. The board specified that it's only the cash awards that are being withheld, leaving equity compensation intact. In 2015, Sloan received $8 million in stock awards and $1 million in “non-equity incentive compensation,” i.e., cash. If his haul for 2016 resembles at all his 2015 pay, the present punishment represents a cut of 11 percent.
That'll teach 'em to think twice before not doing anything at all improper again.