A Seething Rant on CEO Pay From a Bank of America Shareholder

As a shareholder in Bank of America (NYSE: BAC  ) , I, like many others, am holding to the belief that the company will eventually right itself and get back to its highly profitable ways sooner than later. At just half of book value, the once-dominant bank seems like a sure lock, at least to me, to find its footing. But that doesn't mean I can't wag my finger in disdain at upper management once in a while.

Here at The Motley Fool we firmly believe that the management of publicly traded companies, whether big or small, works for their shareholders. As a shareholder, I'm disgusted by the admission yesterday that Brian Moynihan took home more than 6 times the compensation that he received in 2010. Bank of America's justification for the pay increase was almost as ridiculous as the events that surrounded it.

The reasoning behind the boost in Moynihan's compensation package to $7.5 million from $1.2 million was interpreted by The Washington Post as "[j]ustified because the bank turned a profit after losing money in 2010, and because it ended the year with a stronger balance sheet."

 You read that correctly: "after turning a profit." The company made $0.01 in 2011 ... one penny per share! As for the stronger balance sheet, this comes only after Bank of America sold its stakes in China Construction Bank for $8 billion, credit card assets to Toronto-Dominion Bank for $7.6 billion, and the Pizza Hut franchise for approximately $400 million. Bank of America has been fire-selling its assets to better its capital position, and it is working. This does not, however, justify a fivefold pay increase.

But don't think I'm anywhere near done. Last week, I set my discerning eyes on Citigroup's (NYSE: C  ) CEO, Vikram Pandit, for "humbly" accepting a 14,900,000% increase in his pay package despite the fact that Citigroup had plans to layoff 4,500 of its employees -- mostly investment bankers. Moynihan makes these layoffs look like child's play. His cost-cutting measures (yes, I did just say cost-cutting) entailed laying off 30,000 workers over the next few years! That's just a shade over 10% of the bank's total workforce of 288,000.

Last year was also one where Bank of America was surpassed in total assets by JPMorgan Chase (NYSE: JPM  ) . Turning its focus to shedding assets and reining in expenses has left the bank vulnerable to other national banks.

I wish I could say I was done, but I'm not! Did you know that Bank of America, in relation to mortgage and foreclosure-related lawsuits, paid out $14 billion in settlements in 2011? Did I mention that Bank of America's stock lost 58% of its value last year? Forget that it's nearly doubled off its lows set in December -- it still has a long way to go before it gets back to where it began 2010.

Let me be clear that I believe in Bank of America's business model and I understand the need to reduce costs to facilitate profits and do what's best for shareholder interests -- but increasing Moynihan's pay by more than 500% is a gross misuse of company funds when it should be in cost-reduction mode.

For shame, Moynihan, for shame!

Signed,
Sean Williams (TMFUltraLong)
Bank of America shareholder

Is CEO pay out of control? Share your thoughts in the comments section below.

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Fool contributor Sean Williams owns shares of Bank of America but has no material interest in any other companies mentioned in this article. He is unafraid to point out what he feels are gross misrepresentations of shareholder interests. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of Bank of America, Citigroup, and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that always puts shareholders first.


Read/Post Comments (19) | Recommend This Article (27)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 02, 2012, at 9:07 PM, ilovesumm wrote:

    Shareholders and emloyees lost ceo won. What a joke.

  • Report this Comment On April 02, 2012, at 9:32 PM, Morgana wrote:

    Bless you, Mr. Williams. I haven't seen bluntness like this since the 60's. Your disgust at ceo pay is one of the reasons I refused to invest in United Health . . . . We need more people to point out the emperor's wardrobe.

  • Report this Comment On April 02, 2012, at 10:13 PM, jtg4 wrote:

    when i was growing up (a looong time ago) my folks told me "don't be on anybody's board of directors--you can get sued out of your socks".--well, at least be very careful.

    today board members usually are protected from suits by people they are supposed to represent -the stockholders. still there comes a point at which some (many) board members seem to be guilty of such criminal mismanagement they ought to be held personally liable for such unconsionable actions as paying such outrageous salaries to top management-- the board members are the ones who ok the figures

  • Report this Comment On April 03, 2012, at 12:55 PM, WikiCPA wrote:

    I've heard this so many times on the fool. There is a lot of risk in being a CEO of one of the biggest companies in the world. With risk comes reward, bigger risk, bigger reward. Taking the reins of BofA during that disastrous time is not something a normal person wants to take on, failure could ruin the rest of your life. You'd be marked as the so-and-so of ruining the lives of so-and-so, taking on this risk after building your reputation for 20-30 years? You better want to be compensated fairly.

    Also, 30,000 employees laid off with a 6.3 million increase in salary equates to $210 per person. I'm sure they were making much more than that annually. Plus, those people probably shouldn't have been in the industry anyways, the housing bubble created many unnecessary jobs in banking and real estate, giving talentless, unskilled workers the job of giving out loans and selling houses without a degree nor experience.

    I'm long BofA obviously

  • Report this Comment On April 03, 2012, at 2:05 PM, seattle1115 wrote:

    @WikiCPA: "I've heard this so many times on the fool. There is a lot of risk in being a CEO of one of the biggest companies in the world."

    Oh, really? What risk, exactly? In the rare event that a non-performing CEO is actually shown the door, he or she will likely receive a lovely parting gift. In my book, that's not risk. Risk is when an entrepreneur bets her family home on success. Risk is when people put their physical safety on the line. Those are the sorts of things that ought to be well compensated. A failed CEO risks little more than bragging rights at the polo club and the slim chance that the vacation home in Tuscany might have to be put up for sale.

  • Report this Comment On April 03, 2012, at 2:35 PM, TheDumbMoney wrote:

    Meh.

  • Report this Comment On April 03, 2012, at 3:05 PM, Llyr222 wrote:

    @ seattle1115 I agree

  • Report this Comment On April 03, 2012, at 3:52 PM, ayaghsizian wrote:

    i agree too

  • Report this Comment On April 03, 2012, at 4:20 PM, WikiCPA wrote:

    @seattle1115

    I'll try to explain the risks of business to you. When you are the CEO of one of the biggest companies in the world, your name is out there, your education, your home, everything. When you start up a company and bet your family home, no one knows who you are, you might lose your house at failure but you don't lose your ability to go back out there and venture into a new company. When you are the CEO of millions of shareholders, and you screw up, those millions definitely know who you are, where you live, where you went to school. People may want your head, remember Enron? If you only knew the steps they took to ensure the safety of their family.

    I don't think anyone on Enron's executive team is bragging at polo clubs or relaxing in their Tuscany vacation home right now...

  • Report this Comment On April 03, 2012, at 4:31 PM, seattle1115 wrote:

    Sorry - I'm not buying it. When you have to rely upon the example of people who committed criminal fraud on a massive level to support your claim, you may be grasping at straws.

  • Report this Comment On April 03, 2012, at 4:32 PM, TheDumbMoney wrote:

    Wiki, actually I think Ken Lay died of a heartattack, and Skilling if I recall is still going through appeals of a criminal conviction.

    Pitchforks generate webviews and the plaudits of boobs, but Moynihan has only been CEO since like 2010 and $7.5 is very reasonable as a salary for him. Every problem BofA has results either from the legacy mortgage portfolio, mainly from Countrywide, the misguided Merrill acquisition, and the Fed's flattening of the yield curve, none of which have anything to do with Moynihan. Two years is not enough time to judge a fundamental stock pick if the thesis has not been blown, and two years is not enough time to judge a CEO. So far, all signs point to Moynihan being a very good CEO. The time to evaluate his pay is two years from now, maybe, or if his pay were wildly high, which $7.5 million is just not for a CEO of a company that size. If BofA made any mistake, it was in not just saying that the raise was because his prior pay was paltry for a top five bank CEO. Him securing Buffett's imprimeteur of the Bank last year was, alone, worth his salary to shareholders, even on top of the dilution it caused them.

  • Report this Comment On April 03, 2012, at 7:18 PM, apart2long wrote:

    If nobody bought BAC or used their services no CEO to pay.

  • Report this Comment On April 03, 2012, at 8:25 PM, neamakri wrote:

    I dunno... just looked up David Letterman's salary at $45 million per year. Maybe $7.5 million is not that much after all.

    I earn $44K, which is below the U.S. national average, and pay plenty of income tax. I read Fool so I can keep my IRA above water. Hopefully I will not be destitute in retirement in 2 years. Just cross my fingers and pray that Bernanke does not spend more of my grandchildren's money with QExxx.

    One valid point above is "What risk?" I cannot even dream of one tiny risk that the CEO of BAC is taking. Can anybody point out a real risk? I don't mean that he might be slightly embarrassed, I mean will he get his home foreclosed or fired without any further compensation? Can he survive 18 months on unemployment benefits? Get real, please.

  • Report this Comment On April 03, 2012, at 8:26 PM, bretco wrote:

    apart2long, you have something, everyone that believes this is immoral plunder should boycott BoA and let them know we are boycotting because of the disfunctional Board and out-of-whack compensation.

    I closed my business account with them after 35 years and will close out my personal accounts within the week.

    Hope others will follow.

  • Report this Comment On April 03, 2012, at 8:38 PM, SebagoSoc wrote:

    It berates me that there's no consideration. Just selfishness and greed, and not a reasonable justification for a fair salary and perks. I for me, and the hell with you guys. The Spongepotato

  • Report this Comment On April 03, 2012, at 8:49 PM, TMFTomGardner wrote:

    I actually agree with neamakri on this one. I understand where Sean is coming from. But for overseeing a company capitalized at $100 billion and 280,000 employees, I'd say that the upgraded $7.5 million might be too low. There's no question in my mind that the $1.5 million salary in the prior year was substantially too low. The Board probably felt it shouldn't move him to higher levels until the turnaround was clearly evident.

    Executive compensation has many, many factors to consider. In the end, I don't believe the shareholders are the only ones that matter. A company has to serve its shareholders, employees, and customers equally well to become truly great.

    To that end, I have some serious problems with some of the investment products being sold out of Bank of America. The treatment of customers -- and how contradicts so much of what Buffett says -- is why I was so surprised (and somewhat disappointed) to see Berkshire take a stake in BAC.

    But all in all, if you're onboard with what this company is offering the world (which I am not), then I think it's tough as a shareholder to think that your CEO doesn't deserve the upgraded salary for the performance of turning around the business and creating shareholder value.

    Tom Gardner

  • Report this Comment On April 03, 2012, at 8:58 PM, TMFUltraLong wrote:

    Tom & others,

    I can see where Tom and many of you are coming from and I too would be flustered trying to run a $100 billion corporation. $7.5 million is relatively low next to what Citigroup just doled out to Vikram Pandit or what Jamie Dimon brings in.

    I have less of a problem with the physical pay hike itself than the justification for the pay hike. If the board has come out and said, look Pandit hiked his pay, Dimon is being paid X amount, we're going to bump Brian Moynihan up to $7.5 million because he's part of an exclusive group of large money-center banks I don't think I would have blinked. It was that the board more or less attempted to skirt the rise in B of A's stock price (which is the sole reason Moynihan would deserve a raise in my opinion) and instead use the justification of a one-penny profit and an increase in capitalization from merely selling non-core assets as reason to give Mr. Moynihan a raise. For lack of a better word... that's just hokey.

    I'm not planning to sell my BAC position given the pay raise, but I did feel strongly enough to voice my displeasure as you can see above.

    Anyhow...great comments so far. Keep them coming.

    Sean (TMFUltraLong)

  • Report this Comment On April 06, 2012, at 10:17 PM, DrKin wrote:

    These guys can't hold a candle to Robert Stephenson, CEO and President of AT&T who has been on the Board for many years, has watched over a 25% decline in value in the last 5 years and is gorging on $28 MILLION in annual salary with another $40 MILLION in stock options waiting for him. Not to mention that AT&T has some of the least happy customers according to regular CR polls.

  • Report this Comment On April 12, 2012, at 12:00 AM, lpr61 wrote:

    I agree with the comments of Sean Williams concerning Brian Moynihan, CEO at BofA. I have been a shareholder in excess of 40 years and find it hard to believe that his mediocre performance is being rewarded with such a lucrative compensation package, considering where the share price currently stands. P/E is what? (886.00)

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