Wells Fargo & Co.'s four top executives won't get cash bonuses for 2009, but are receiving performance-based stock awards currently worth a combined $25 million that are designed to keep them from being lured away by rival banks.
Wells Fargo announced the compensation moves on Thursday a week after saying it had repaid $25 billion it received under a government financial rescue program that imposes restrictions on executive pay.
The so-called "retention" shares would be forfeited if CEO John Stumpf or three other high-ranking executives leave San Francisco-based Wells Fargo for a competitor. They vest after three years if the nation's fourth-largest bank meets certain performance goals.
The lack of a 2009 cash bonus and the three-year vesting period are similar to a move earlier this month by Goldman Sachs Group Inc. That bank said its top executives will not receive cash bonuses this year, with 30 high-ranking executives instead receiving stock that cannot be sold for at least five years.
Clark Troy, an analyst with financial consulting firm Aite Group, said the vesting periods could insulate the banks from further public outcry over industry compensation, should the banks' capital strength deteriorate in 2010.
"From a public relations perspective, it's absolutely positive for them to court public approval by deferring compensation," Troy said. "They can't be criticized by someone who might say, 'How come your capital ratios are bad, and yet you gave these big bonuses?' "
Steve Sanger, chair of the Human Resources Committee for Wells Fargo's board, said in a statement that keeping the four executives at the bank in the wake of its acquisition of Wachovia Corp. is "absolutely essential for the continued long-term success of Wells Fargo."
Sanger said the four have led Wells Fargo "through the largest merger integration in U.S. banking history, and they have played key roles in generating record profits in the first three quarters of 2009, despite the challenging economy."
Wells Fargo is awarding Stumpf a target of 379,600 shares, currently worth $10 million. Chief Financial Officer Howard Atkins, wholesale banking head Dave Hoyt and consumer finance head Mark Oman are each getting 189,800 shares, worth about $5 million. The totals could be adjusted over the next three years based on the company's performance.
Wells Fargo's announcement comes more than four months after the bank increased the four executives' salaries, with the increases paid not in cash, but through issuance of company stock.
The stock couldn't be issued until Wells Fargo repaid funds it received from the Treasury Department under the Troubled Asset Relief Program, launched at the peak of the credit crisis. Wells Fargo acquired Wachovia around the same time.
Wells Fargo said last week that it repaid the taxpayer money in a move made possible in part through the bank's recent public stock offering, which raised $12.25 billion.
Wells Fargo's exit from TARP freed it of compensation restrictions the government imposed amid outcry over pay at banks whose lending and investing practices helped send markets and the economy into a tailspin. Banks still holding money under the program are barred from paying cash bonuses to top executives, retention awards to top managers or stock compensation subject to performance-based vesting.
Shares of Wells Fargo rose 40 cents to $27.22 in afternoon trading.