We recently learned that Wells Fargo (NYSE:WFC) CEO Tim Sloan received $1 million more in total compensation during 2018 than in 2017, despite the lingering effects of the bank's numerous scandals.
In this Industry Focus: Financials clip, host Jason Moser and Fool.com contributor Matt Frankel, CFP, discuss why Sloan may have deserved the pay bump, as well as the reasons a raise might sound ridiculous.
A full transcript follows the video.
This video was recorded on March 18, 2019.
Jason Moser: We were reading through an article last week about Wells Fargo's CEO Tim Sloan. It looks like Mr. Sloan got a little bit of a raise for 2018. I guess the question that's on everybody's mind right now is, did he really deserve it?
Matt Frankel: I'm going to argue for and against this. Before I start getting hateful tweets, just bear with me for a second.
First of all, just to put everything in context, his total compensation went up to $18.4 million, which is a million more than last year. Whether you think $18.4 million is too much for any one person to be making, that's another issue. But the raise is the issue. His base compensation really didn't go up. His base salary of $2.4 million is the same as it was last year. His stock-based compensation actually went down, which makes sense, because Wells Fargo's stock has done so terribly. Where he got more money was, the board decided to give him a $2 million bonus, which he didn't get at all last year. That's the issue here.
Now, first, I'll argue for it. To put it in context, Sloan is still actually one of the lower-paid bank CEOs, even with this raise. Jamie Dimon made $31 million last year. Brian Moynihan made $27 million last year. But to be fair with those guys, they weren't running banks that had 10 different scandals and all kinds of stuff like that going on.
We don't know what the bonus itself was actually for. This is the argument where I want to know a little bit more before I rush to judgment. If, let's say, when he took the job as CEO, he agreed to a certain amount of travel days, a certain amount of times testifying in front of Congress, things like that, and he wound up having to do more, maybe the board decided to compensate him for that extra work. I know at The Motley Fool, sometimes I get assigned a project that turns out taking twice as long as my boss intended it to, and they wind up giving me a little bonus for it. So, maybe it was something like that.
Moser: Sure, a little overtime. Makes sense.
Frankel: It's really tough to make the case that Sloan has not put fixing the problems at Wells Fargo as his No. 1 priority. If you read either of the last two annual reports, they issued a separate report earlier this year about all the ways they've changed the culture, some internal changes they've made. So, those are the arguments for why he might deserve a bonus.
Now, having said that -- again, don't get on your Twitter just yet -- the arguments again against it are, one, the bank still hasn't made enough improvements to satisfy the Federal Reserve, whatever the Fed's looking for. Remember, there's that big penalty that's still in place. Wells Fargo is not allowed to grow. So this guy's running a bank that isn't growing.
Moser: Good point.
Frankel: [laughs] Right. No. 2, it's not like Tim Sloan was brought in from the outside to fix the problems. He was already there. Tim Sloan was the president and COO of Wells Fargo while all these scandals were going on. In a way, it's like he's cleaning up his own mess. This is why politicians like Elizabeth Warren think he should be fired.
Moser: I think you make a good point there. I was going to maybe cut him a little slack, saying, "Maybe he's coming in and helping clean up a culture that obviously was out of whack." But the fact remains, you're right, he wasn't hired from the outside. This is really partly a mess of his own making, whether he was a CEO or CFO or COO, it doesn't matter. When you're in that executive suite, perception is everything. There's no question that he had a part to play in what really broke this bank to begin with.
Frankel: Right. That's why Elizabeth Warren and a lot of other politicians think he should be fired, not getting raises. It's his mess! In a lot of people's minds, he should be lucky to have a job at all after all the thousands of consumers who were taken advantage of, admittedly, by the bank.
There's some gray area here. Like I said, he's still on the low end of the pay scale for bank CEOs. He has done a good job, in my mind, of trying to rehabilitate the bank's image, making some cultural changes and things like that. But on the other hand, has it been enough? Maybe not. And it's his mess to begin with. So like I said, I'm torn.
Moser: Yeah. It's always worth mentioning, it's not like you just turn this ship around overnight. That's a big company. Clearly, there were several points of failure. To clean that mess up, it's going to take a while. I feel like they probably would have been better served to bring in someone from the outside. I think that's an easier message to communicate. But they chose to go another way with it. Fine, whatever. When you do that, you have to recognize, this is going to be a problem that you're going to deal with. Again, perception oftentimes is reality. When you have that headline saying that the CEO of this bank has just been screwing everybody left and right, and just got a raise, people are going to be mad. I get it.
So, yeah, make sure to tweet @TMFMathGuy for all of your controversial --
[laughs] Just kidding! Don't give Matt a hard time! I think you played that one very well, Matt. A fair look at both sides of the coin there.
Check out the latest earnings call transcript for Wells Fargo.