Photographer: Scott Eells / Bloomberg
Photographer: Scott Eells / Bloomberg
Anger increases in the higher ranks Bank of America Corp. after the company abandoned an unpopular new bonus policy for top traders and dealmakers, while retaining the plan for other employees.
It is an award of company stock that high earners – usually those making $ 1 million or more – first received as part of their 2020 compensation. Rather than vest in equal parts over a period of time, as is customary with such awards, these bonuses have a “cliff vest” provision that prevents the stock from being eligible for sale until after four years.
People familiar with the situation described an internal drama that unfolded in recent weeks.
Initially, the bank intended to apply the new remuneration structure widely. But investment banking and trading veterans rebelled when they learned they would have to stay until 2024 to rake in bonuses for 2020, and management agreed to exempt them.
Chief Executive Officer Brian Moynihan acknowledged the backlash in a Jan. 27 interview on Bloomberg Television, saying the policy change “didn’t work the way some people wanted, so we fixed it.”
Brian Moynihan, CEO of Bank of America Corp.
Photographer: Andrew Harrer / Bloomberg
Yet senior colleagues in corporate and commercial banking, a less powerful cohort, soon found out that their rewards are still subject to vesting restrictions. Then the grunting started, the people said. In recent days, employees have gathered to express frustration and discuss options.
The decision struck a raw nerve. Bank of America is torn by long-standing jealousy and division among its more than 200,000 employees, many of which date back to the shotgun marriage to Merrill Lynch in the 2008 financial crisis. An unequal approach to compensation risks exacerbating these tensions at a time when most of the business works from home and collaboration is costly.
While compensation on Wall Street is always a balancing act, conditions have been extremely difficult for Moynihan. Many traders and bankers had a great year, thriving as the markets fluctuated, and they expected to be rewarded. But Bank of America more than tripled its loan loss provisions $ 11 billion, expecting borrowers battered by the pandemic to default. Net income for the year fell 35%.
“You have to pay for performance, and the shareholder should also benefit,” Moynihan said in the interview.
Wall Street has been mostly conservative with its 2020 pay. JPMorgan Chase & Co. and Goldman Sachs Group Inc. kept pay per employee under control, and Citigroup Inc. cut bonuses for dozens of top executives after the bank was reprimanded by regulators.
Read more: Wall Street is frugal with employees after a pandemic windfall
Bank of America reduced cash payouts and extended vesting periods for regular stocks. Without the new bonuses, people say many executives would have faced pay cuts.
In the interview, Moynihan said the company would distribute a total of $ 10 billion to $ 11 billion in incentive compensation by 2020. Investment bankers and merchants typically receive a higher proportion of their wages in equity than employees elsewhere in the company.
“Our bonus pools have fallen year over year, but some teammates have made more money and others less,” Moynihan said.
The cliff-vest provision is particularly problematic for executives with a long track record in corporate and commercial banking who expected to qualify for what is known internally as the ‘rule of 60’. Previously, Bank of America retired employees with all deferred benefits, as long as their age plus a minimum of 10 years at the company was 60. That precious benefit now excludes the new bonuses.
Exacerbating those frustrations, people said, the decision to exempt investment bankers from the fortress restrictions has been seen as a golden handcuff, but enforcing them on corporate bankers. Both groups are part of the same division – global corporate and investment banking – led by Matthew Koder.
Such resentment has divided major banks for years. Across the industry, rainmakers who get billions of dollars in merger mandates or large corporate finance are capped and can pull down eight-figure pay packages. In the meantime, traditional bankers responsible for lower margin activities, such as lending or cash management, earn less and to feel as second-class citizens.
Tom Montag, the powerful chief operating officer of Bank of America who joined the Merrill acquisition, is widely regarded as loyal to merchants and investment bankers. Some commercial banking veterans to feel they are being unfairly punished for the pandemic, a disaster beyond their control, said those familiar with the situation.
– With help from David Westin