Remember "too big to fail" and all of the handwringing about bank instability in the wake of the 2008 financial crisis? No? How about the financial crisis, you remember that? No again?
That’s fine, you’re in good company because a new report from the Federal Deposit Insurance Corp. and Federal Reserve say five of the largest banks in the land have no credible plans in place that would not leave taxpayers on the hook for liabilities in the event of bankruptcy.
The feds made such plans, nicknamed “living wills,” mandatory following the financial crisis and the public perception bankers were privatizing profits and socializing losses. Yeah, the big bonuses they paid themselves immediately prior to and following the 2008 financial crisis and public bailout did not help that perception.
But that was ages ago. Analysts suggest the current deficit in planning is much ado about nothing. Kevin Barker, an analyst at Piper Jaffrey, told clients: "The capital levels for these banks are at multi-decade highs." What could go wrong? All of that aside, federal regulators gave the banks in question — Bank of America (BAC), Bank of New York Mellon (BN), JP Morgan Chase (JPM), State Street (STT) and Wells Fargo (WFC) — until Oct. 1 to fix the shortcomings.
Goldman Sachs (GS), Morgan Stanley (MS) and Citigroup (C) also had deficiencies in their living wills but not severe enough to prompt intervention by federal regulators. Despite this apparent bad news, bank stocks were higher across the board last week following better-than-expected results at JP Morgan. Go figure.
The takeaway from all of this, apart from the fact Wall Street has an amazingly short memory, is that very little has really changed. The big banks are still too big and getting bigger. They are still able to evade stringent regulation by collectively misbehaving.
And, when the next crisis comes along… as it inevitably will, they are likely to be woefully unprepared because executives know their indiscretion will ultimately be absorbed by taxpayers. Yes, we have seen this all before and we know how it ends.
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BETTER THAN A GOLD WATCH
There was a time when a lifelong record of corporate service meant some kind parting words and a lovely gold watch. It didn’t have to be real gold but at least it was a nice watch, a show of gratitude.
That is so yesteryear. Marc Benioff, the founder and chief executive at Salesforce.com (CRM), just gave Keith Block, a guy he hired in 2013, a $40,000 watch, $12.3 million in salary and a $10 million bonus. And that’s not the half of it. Last year, Salesforce footed the $100,000 bill to send Block and two other top executives to a sales and motivational conference. Gee, you would think a compensation package of better than $20 million a year… would be motivation enough. Maybe not.
I offer all of this information as backstory to the really interesting recent development at Salesforce. In a proxy statement last week, the company revealed it had made "significant changes" in the 2017 compensation package offered to Benioff. These changes included reducing his salary by about 16% and tying a good chunk of his overall compensation package to restricted stock issued based on performance.
In fiscal 2016, Salesforce ended up paying Benioff $33.4 million, comprising a base salary of $1.55 million and $3.1 million of additional bonus. Because we don’t know the conditions for how the restricted stock is to be awarded, it’s hard to say what his 2017 compensation package will ultimately look like. But what are the odds he’s really taking a pay cut, given the generosity afforded other Salesforce executives?
It’s true, Salesforce has been a terrific company, and its stock has performed very well. For that Benioff should get a lot of credit. But these public announcements of pay cuts are disingenuous, devised to obscure true income levels. On paper it may look like the Salesforce CEO is earning only a single-digit multiple of the average employee’s salary, and that plays well in the court of public opinion. It also plays well with investors to tie compensation to stock performance. But Benioff doesn’t really make $1.55 million per year, and it is self-serving to pretend he does.
Best wishes,
Jon Markman
P.S. There is still time to save your wealth and profit! The information in this news special, “THE UNSEEN HAND,” is cutting edge; ripped from today’s headlines. We cannot leave it online past this week and it may go offline at any time without notice.
