A short-term drop in Wells stock may suit its execs just fine
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Based on their new pay packages, Wells Fargo & Co.’s senior executives might well be hoping for a serious stock market pullback soon.
That’s because a drop in Wells’ stock price would net the execs more shares under the compensation program the San Francisco company announced Thursday -- a plan designed to stay within the government’s pay restrictions on banks that have received federal capital injections.
As a recipient of $25 billion in capital under the Troubled Asset Relief Program, Wells faces limits on the stock options and other bonus compensation that it would normally award its executives.
The bank’s solution: It sharply boosted the base salaries of Chief Executive John G. Stumpf and three other senior execs, and will pay those salaries primarily in stock.
Wells said Stumpf’s cash salary for 2009 would be unchanged from 2008, at $900,000. But he also will get $4.7 million in salary paid in company stock.
Each pay period, Stumpf will receive a set dollar amount of shares until the total paid out reaches $4.7 million. So if Wells’ stock price ($27.97 a share on Thursday) drops over the next few months, Stumpf will get more shares than if the stock holds steady or rises.
If he believes Wells will prosper in the long run, and he has no need to cash in stock he already owns, Stumpf actually should cheer any short-term sell-off in the bank’s shares.
By contrast, if he were getting stock option grants, as in 2008, Stumpf would suffer if the price of Wells’ stock declined, because that would narrow the difference between the pre-set option exercise price and the price of the shares in the market -- or drive the option under water.
Howard Atkins, the bank’s chief financial officer, will get a cash salary of $700,000 this year plus $2.64 million in salary paid in stock, Wells said. Two other execs -- Dave Hoyt, head of wholesale banking, and Mark Oman, head of home and consumer finance -- also will get large stock payments.
None of the Wells executives can sell the stock they receive until the bank repays its TARP capital.
Wells said in a statement that its new pay structure ‘will result in total annual compensation close to the average pay for similar executive roles at peer group companies.’
As for TARP limits on pay, Wells director Steve Sanger, who chairs the board’s human resources committee, said in a statement that the bank believes that ‘these increases in compensation adhere to both the letter and spirit of the new executive compensation rules that apply to companies that received a U.S. Treasury investment.’
-- Tom Petruno