Wells Fargo chairman and CEO John Stumpf. Image credit: Wells Fargo.
Wells Fargo (WFC -0.84%) is generally the last big bank to announce each year how much its CEO earns, but now that it's done so, we can get a sense for how (and how much) the nation's third largest bank by assets compensated John Stumpf for his efforts last year. The three charts below dig into this, comparing, when appropriate, Wells Fargo's compensation approach to those at JPMorgan Chase (JPM 0.12%) and Bank of America (BAC -1.21%).
1. Stumpf ranks fourth in terms of total pay
Wells Fargo's board awarded Stumpf $19.3 million in total pay last year. That's a lot of money by most peoples' standards, but it ranks Stumpf fourth compared to his counterparts at the nation's other too-big-to-fail banks.
Data source: 2015 proxy statements.
On one hand, this is surprising. I say that because Wells Fargo is the most profitable megabank in the country. Its return on common equity last year was 12.7%. That comfortably exceeded the profitability of JPMorgan Chase and Bank of America, its principal peers, which turned in ROCE's last year of 11% and 6.3%, respectively.
On the other hand, the fact that Wells Fargo pays its CEO less than other large banks seems to reflect its relative commitment to frugality. Indeed, one of Wells Fargo's most attractive qualities from the perspective of investors is the fact that it spends a smaller share of its revenue each year on operating expenses than all but a handful of other banks. Its efficiency ratio last year was 57.8%, which easily bests JPMorgan Chase's 63% and Bank of America's 68.6%.
2. Stumpf didn't get a raise last year
One reason Stumpf earned less than at least his counterpart at JPMorgan Chase is because Jamie Dimon got a raise last year, while Stumpf's total pay package stayed the same. In fact, the last time Wells Fargo's board of directors gave Stumpf a raise was 2012, when his pay increased to $19.3 million from the previous year's $17.9 million.
Data source: Wells Fargo's 2015 & 2013 proxy statements.
The fact that Stumpf didn't get a raise makes sense when you consider that Wells Fargo's profitability declined last year. Its ROCE in 2014 was 13.4%, or roughly 80 basis points higher than it was last year. Though, to be fair, it's reasonable to assume that much of the drop is due to the fact that interest rates remain at historic lows, which is weighing heavily on the profitability of bank loan portfolios.
3. The composition of Stumpf's pay package
The design of a bank's compensation program is important. Not only does a board want to ensure that it's appropriately incentivizing prudent long-term thinking, but it also wants to tie as much as possible of its executives' pay to performance. Wells Fargo performs admirably on both counts.
Data source: Wells Fargo's 2015 proxy statement.
As you can see in the chart above, a large majority of Stumpf's 2015 pay package consisted of variable as opposed to fixed compensation, such as a salary. Additionally, assuming that Stumpf earns the entirety of his $19.3 million package, which will be determined over the next two years, then two-thirds of the sum will come in the form of stock as opposed to cash. This keeps "skin in the game" for the 60-year-old chairman and CEO, and thereby more closely aligns his interests with that of Wells Fargo shareholders.
In sum, while one can argue about the amount of money big bank CEOs make, there are few who earn their keep as convincingly as John Stumpf. And the results over the years have proven this out, as Wells Fargo has long been one of the best-run and highest-returning banks in the industry.
