Wells Fargo (NYSE:WFC) announced this week that CEO Tim Sloan received a 5.7% pay raise in 2018, which translates to $1 million in additional total compensation compared to 2017. This may come as a surprise, given the bank's scandal-plagued recent history.

Why did Sloan get a raise in 2018? Has the bank really made significant improvements to its culture and processes that warrant the change? Here's what we know so far, and what lingering issues still remain.

A stack of $100 bills

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Tim Sloan's compensation: 2017 vs. 2018

Digging a little deeper, here's how Sloan's compensation breaks down. There are three main ways Sloan can get paid -- he gets a base salary, he earns stock awards, and the board of directors can choose to give him a bonus.

In 2017, Sloan received a $2.4 million base salary, along with $15 million in stock awards. In 2018, Sloan's salary stayed exactly the same, and his stock awards fell to $14 million. The stock awards drop could be tied to the fact that the bank's stock fell 22% in 2018. If so, it's not surprising that Sloan's stock compensation didn't go up. However, the board did award Sloan a $2 million bonus in 2018, while he didn't get anything in 2017. In a nutshell, the bonus is the source of Sloan's raise.

In all, Sloan's total compensation rose from $17.4 million in 2017 to $18.4 million in 2018.

To put this figure into perspective, it's important to point out that Sloan is still a relatively low-paid CEO in the realm of the largest U.S. banks. For example, JPMorgan Chase CEO Jamie Dimon received $31 million in total compensation in 2018, and Bank of America CEO Brian Moynihan's total pay was $27 million. Then again, the others aren't running institutions that are struggling to recover from scandals.

Sloan was hired as CEO to right the ship; has he?

Wells Fargo's announcement of Sloan's compensation came just a day after he appeared before the House Committee on Financial Services. He was there to show the progress his bank has made in the two-plus years since the infamous "fake accounts" scandal was reported, and a subsequent wave of misdeeds by the bank was made public.

As a result of Wells Fargo's bad behavior, the Federal Reserve slapped an unprecedented penalty on the bank in February 2018, prohibiting it from growing beyond its size at the end of 2017, until substantial improvements are made.

Has Wells Fargo made improvements? In a January 2019 report titled "Learning from the past, transforming for the future," Wells Fargo's management discussed some of the actions that have been taken. These include:

  • Eliminating product-sales goals for retail bankers in branches and call centers, and developing incentives more in line with the best interests of customers
  • Centralizing many of its control functions to increase oversight and consistency
  • Strengthening its focus on risk management
  • Making changes to the board of directors, such as adding members with more experience in areas such as risk management
  • Providing restitution to customers who were affected by the fake-accounts scandal, or any of Wells Fargo's other scandals

To be fair, Wells Fargo has made some pretty significant changes to its organization. And judging by the company's past couple of annual reports, Sloan seems to be doing everything in his power to reinvent Wells Fargo's broken culture and put its scandals behind it. Some of the bank's recent results suggest that it might be turning a corner in overcoming the effect of those scandals on its business.

Having said that, there are two points that many politicians and investors cite when suggesting that Sloan doesn't warrant a raise at all.

First, the bank hasn't made enough satisfactory improvements as far as the Federal Reserve is concerned, so it's still not allowed to grow.

Second, and more significantly, Sloan wasn't exactly an outsider while the scandals were going on. He had been with Wells Fargo since 1987, and held the roles of chief operating officer and president beginning in November 2015. Many observers say that Sloan is simply cleaning up a mess that he's partially responsible for in the first place. Sen. Elizabeth Warren, who sits on the Senate Committee on Banking, Housing and Urban Affairs, has even gone so far as to call for Sloan's firing, saying that the CEO is "deeply implicated in the bank's repeated and egregious misconduct."

It's fair to say that this raise is likely to incite more criticism -- as will any future raises given to Sloan until the bank's scandals are well in the rearview mirror.