Wall Street pay is set to be reduced after a dismal year but the cuts won’t spare banking chiefs from potentially bruising encounters with investors during coming shareholders meetings.
Investors ranging from charitable foundations to large state pension funds are preparing to challenge large financial firms on their pay practices. As a result, this year’s “proxy season”—the period, usually in the spring, when companies hold annual shareholder meetings—promises to be an eventful one in the financial sector, compensation consultants and corporate-governance experts say.
This follows a year in which the sector’s shares have sharply underperformed the broader market. “Shareholders are always a little happier when they see their stocks rise,” said Paul Hodgson, a compensation expert at corporate-research firm GovernanceMetrics International, who added the season is expected to be “a lively one.”
Further, in the past year everyone from lawmakers to Occupy Wall Street protesters has railed against what they see as excessive compensation for bankers.
Annual meetings have historically been ritualistic affairs, but regulatory measures in recent years have sought to give more of a voice to institutional holders. That allows activist investors to press their cases on issues such as executive pay.
Giant firms are expected to cut executive pay by some 30% from 2010 levels, consultants say. And since the financial crisis of 2008, firms have reduced cash bonuses, increased their use of company stock and added clauses that allow them to recoup—or “claw back”—pay in certain circumstances.
Even so, some investors want more changes. In December, the Nathan Cummings Foundation—a private charitable organization and institutional shareholder—filed proposals asking that directors at Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. address potential reputational damage that big pay packages could bring to the banks, said Laura Campos, director of shareholder activities at the foundation. The proposals also request that they study how such awards could reduce banks’ ability to spend money on other areas, and report those findings to shareholders.
