In a hot job market, banks dish out awards to retain executives

Amid the most competitive job market in recent history, numerous banks last year granted special compensation to their CEOs and other high-ranking executives in an effort to persuade them not to leave.

Nearly one-quarter of 59 large and midsize banks reported such awards in their latest proxy statements, according to an analysis this spring by the consulting firm Compensation Advisory Partners. The special awards ranged in value from $100,000 to $52.6 million. Of the 14 banks that granted them, 10 companies cited retention as at least one of the reasons it did so.

Doling out such prizes delivers a strong message to chief executives and other corporate leaders who may or may not be currently engaged in employment discussions elsewhere, said Kelly Malafis, a founding partner at Compensation Advisory Partners.

“Sometimes the individuals who get these awards are not even necessarily looking” for a new job, said Malafis, whose firm reviewed executive compensation packages at banks with at least $10 billion of assets. “But the management team and the compensation committee want to signal that they are important to the organization, and hopefully shut down those discussions” before they happen, she said.

The battle for talent in banking, which was facing a skills deficit even before the COVID-19 pandemic disrupted the workforce, continues to rage across much of the industry. To combat hiring and retention difficulties, banks are raising wages and salaries, reskilling existing employees and accommodating employees’ growing demand for hybrid or remote jobs.

“It’s what we saw last summer times 10,” said Cameron Boyd, director of the financial services practice at the executive search firm Smith & Wilkinson, which works primarily with community and regional banks. “The market simply could not be any tighter.”

At the C-suite level, retention awards are one way to encourage key executives to stick around when they might be tempted to retire or leave for another job, said Adam Eckels, the founder and CEO of AJ Consultants, an executive search firm in Kingston, Pennsylvania, that works with banks, credit unions and fintechs to fill open positions.

“We’re seeing a lot of premeditated stuff, before a person says they are unhappy,” Eckels said. “There’s a plan … as to how to keep them happy, engaged and knowing what the next step is.”

In most instances, the awards should work in terms of hanging onto key talent, Eckels said.

“It’s very hard for somebody to walk away from a large, guaranteed chunk of cash or stock compensation,” he said. “They call it ‘golden handcuffs,’ and they call it that for a good reason.”

The 14 banks that made retention awards in 2021 range in size from banking giants JPMorgan Chase and Bank of America to regional banks such as Citizens Financial Group in Providence, Rhode Island, and community banks such as Renasant Corp. in Tupelo, Mississippi. 

Different banks took different approaches. Some awards were handed out as cash payments, while others were structured as time-vested restricted stock units or performance-based stock units, or as some combination of those award types.

The largest retention award went to JPMorgan CEO Jamie Dimon, who last summer received stock options worth $52.6 million, according to the company’s most recent proxy statement. 

The options have a 10-year term and cannot be exercised until at least mid-2026. The decision “reflects the board’s desire” for Dimon, 66, to lead the company for several more years and “reflects the unique inflection point in [his] tenure and the importance of his continued leadership and support of the firm’s … succession plans,” according to the proxy statement.

Dimon’s award and a $27.9 million award to JPMorgan Chief Operating Officer Daniel Pinto are outliers in comparison with the smaller awards given by other banks. Bank of America awarded $7.2 million in restricted stock units to Vice Chair and former Chief Financial Officer Paul Donofrio and $2.4 million in RSUs to current CFO Alastair Borthwick.

The Charlotte, North Carolina, company said in its proxy statement that the awards are “based on record 2021 performance” and the “ongoing criticality” of both men to the company in future years. To receive full payment of the awards, which were granted in February of this year, both Donofrio and Borthwick must remain employed at Bank of America through a four-year back-loaded vesting period that grants 50% of the awards in February 2025 and the remaining 50% in February 2026, the proxy statement said.

At Old National Bancorp in Evansville, Indiana, the executive leadership team including CEO Jim Ryan received retention awards for 2021, in part to motivate them to achieve performance and cost-savings goals related to Old National’s recent merger with First Midwest Bancorp in Chicago, but also to “support retention” of certain leaders, the proxy statement said.

The value of the Old National awards, which were distributed in cash and performance-based stock units, ranged from $628,000 to $5.3 million, according to Compensation Advisory Partners’ analysis.

Atlantic Union Bankshares in Richmond, Virginia, recognized Chief Operating Officer Maria Tedesco with a $250,000 retention award in the form of restricted stock. The company cited Tedesco’s leadership and performance, but also wanted to incentivize her to stay with the bank.

Meanwhile, Bank of Hawaii in Honolulu gave awards to four members of its executive team, citing an uptick in “competition for banking executive expertise in the local marketplace,” its proxy statement said. The awards to Chief Banking Officer James Polk, Chief Risk Officer Mary Sellers, Chief Financial Officer Dean Shigamura and Sharon Crofts, who leads the client solutions group, ranged from $1 million to $4 million, and were a mix of cash and stock options.

The Bank of Hawaii awards only vest if the individuals keep working at the bank for a certain number of years and if they perform at least at a level that “meets expectations.” The final award amounts depend on the company’s performance relative to its regional bank peers.

Across the banking industry, retention awards were a fairly balanced mix of smaller time-based awards and larger performance-based awards, said Shaun Bisman, principal at Compensation Advisory Partners.

Linking the larger awards to future performance can be key to pleasing shareholders who pay attention to pay packages, he said. “That’s generally more palatable to shareholders and investor advisory firms when it’s tied to performance or vesting over four years or more,” Bisman said.

JPMorgan’s retention awards to Dimon and Pinto were not related to the bank’s 2021 performance. The awards drew attention last month when just 33% of shareholders voted in favor of the company’s executive compensation packages for 2021. The non-binding advisory vote during JPMorgan’s annual meeting came after the investor advisory firms Glass Lewis and Institutional Shareholder Services recommended that shareholders reject the company’s pay packages, saying the one-time grants to Dimon and Pinto were “excessive.”

The likelihood that retention awards will be handed out at the same pace during 2022 as last year is slim, according to executive compensation experts. So far this year, the stock performance of banks is down from 2021, and it would be hard to justify such awards when banks aren’t as profitable, experts said.

“All these banks can’t keep pouring retention awards upon retention awards and still be where they need to be from a bottom-line standpoint,” Eckels said. “Eventually it will peter out.”

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