Following a tumultuous year at Wells Fargo (NYSE:WFC), the bank's board of directors is reportedly going to eliminate annual bonuses that its top executives would have otherwise received for their performance last year, says The Wall Street Journal.
The move comes on the heels of a number of setbacks for the California-based bank.
- In September, the Consumer Financial Protection Bureau fined Wells Fargo $185 million after discovering that thousands of employees at the bank's branches had opened up to 2 million fake accounts for customers in order to meet exacting sales quotas.
- Two months later, in November, the Office of the Comptroller of the Currency began requiring Wells Fargo to seek permission to make changes to its executive officers and directors.
- And a month after that, in December, the Federal Reserve rejected Wells Fargo's 2016 resolution plan, which details how it would be resolved in the event of a bankruptcy. As a result, Wells Fargo is currently prohibited from establishing international bank entities or acquiring any non-bank subsidiary.
The fake-account scandal revealed in September was particularly damaging. It caused Wells Fargo's stock to plummet in its wake and led to the resignation of its former chairman and CEO John Stumpf.
The fallout also undoubtedly played a role in the drop in Wells Fargo's profitability. Its return on average tangible equity in the fourth quarter was 13.2%, ceding the top spot among multitrillion-dollar banks to JPMorgan Chase.
The resulting damage has been threefold. First, the missteps will cost money to clean up. Second, the fake-account scandal in particular led Wells Fargo to eliminate product sales goals in its branches, triggering 40%-plus drops in new checking account openings and credit card applications in the final months of 2016. And third, the bad press significantly damaged Wells Fargo's brand, which is no longer the most valuable bank brand in the world.
One could argue that the executives who are likely to forgo bonuses for 2016 weren't the ones responsible for the fake-account scandal. Its new CEO, Tim Sloan, for instance, had worked his way up the wholesale side of Wells Fargo's operations, which doesn't seem to have been involved in the creation of fake accounts. Its CFO, John Shrewsberry, didn't run the retail operations, either.
But this argument doesn't hold up when you consider that Wells Fargo began firing 1,000 employees a year as far back as 2011 for opening fake accounts. It continued on this track for the next four years, and doesn't seem to have brought the illicit sales practices to a halt until the bank was reprimanded by regulators last year.
These executives therefore almost certainly knew that the practices were going on in its retail branches, whether or not they oversaw the branches themselves. As such, they had a duty to bring them to a stop. Consequently, it's hard to argue with the board's purported decision to withhold their 2016 bonuses.
And it's not as if any of these executives will struggle to pay rent, as many of the thousands of fired employees no doubt have over the past few years. Sloan earned $11 million the previous year, while Shrewsberry's total compensation package for 2015 added up to $9 million.