Sloan Pay Raise Shows Wells Fargo Still Lacks Accountability
(Bloomberg Gadfly) -- If Wells Fargo has learned its lesson from the past year and a half, it has an odd way of showing it.
Last year was not a good one for the bank. Wells Fargo disclosed that it had forced customers to buy unwanted car insurance, and then it later botched the refund process. The Justice Department opened an investigation into its wealth-management unit. And just last month, the Federal Reserve imposed new limits on Wells Fargo, including on how much it can grow. What's more, its stock rose just 8 percent in 2017, far less than rivals and the market in general.
And yet, on Wednesday evening, the bank disclosed that it had CEO Tim Sloan a 36 percent pay raise for 2017. The raise is the second largest among big bank CEOs for last year, following only the one for Citigroup CEO Michael Corbat, whose compensation rose 48 percent. Citigroup's stock, though, was up nearly 23 percent, or nearly three times that of Wells.
Wells Fargo's board did decide not to pay Sloan a cash bonus for 2017, something the company said Sloan suggested himself. But it increased his stock compensation by $4.5 million and his base salary by just more than $70,000 and approved an $87,000 one-time payment to install and upgrade a security system at Sloan's home. The stock bonus is tied in part to the bank's ability to record a higher return on equity than its rivals, which Wells Fargo did regularly until its recent scandals.
Sloan in a recent interview with Bloomberg News tried to paint Wells Fargo's troubles as in the past -- mistakes made years ago that the media is just reporting now and making them sound new. But the Fed's sanctions are not ancient history. It cited Wells Fargo for having poor internal controls, an issue that regulators said continued to be the case as recently as last month. In addition, it would be one thing to say that Sloan came into a tough situation and had a lot to clean up. But he's been at the bank for years, while the problems were developing, and he's the one who told the Los Angeles Times in 2013, after having been presented with evidence that the bank was creating fake accounts, that Wells Fargo didn't have a problem. Sloan faced a high bar to prove he was turning away from the bank's bad past, and he hasn't met that.
Much of the root of the problems that have plagued Wells Fargo had to do with bad incentives and a lack of accountability. The bank's sales representatives were compensated based on the number of accounts for each customer, not on whether customers actually needed those accounts or whether they produced profits. Carrie Tolstedt, the executive most closely tied to the fake account scandal, was initially allowed to leave with a nine-figure payout and a big pat on the back. When JPMorgan Chase & Co. ran into its London Whale troubles, the bank cut CEO Jamie Dimon's pay by 50 percent. Vikram Pandit, Citigroup's former CEO, was paid only $1 for a time. That's what real accountability looks like.
Some have called for Wells Fargo to remove Sloan; instead, the bank's board rewarded him with a 36 percent pay raise for a job not yet well done. Wells Fargo, for whatever progress it has made, still has plenty left to fix.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Stephen Gandel is a Bloomberg Gadfly columnist covering equity markets. He was previously a deputy digital editor for Fortune and an economics blogger at Time. He has also covered finance and the housing market.
To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net.
©2018 Bloomberg L.P.