Photographer: Scott Eells / Bloomberg
Photographer: Scott Eells / Bloomberg
Anger is growing in the upper echelons of Bank of America Corp. after the company renounced a new unpopular bonus policy for key traders and negotiators, while maintaining the plan in place for other employees.
At issue is a grant of shares in the company that the biggest winners – usually those who earn $ 1 million or more – received for the first time as part of their 2020 remuneration. Instead of being acquired in equal parts over a given period period, as these awards usually do, these bonuses have a “resource acquisition” clause that makes the shares eligible for sale only after four years.
People familiar with the situation described an internal drama that has unfolded in recent weeks.
The bank initially planned to apply the new payment structure widely. But veterans of investment and trade banks were outraged to learn that they would have to stay until 2024 to harvest the bonuses in 2020, and the administration agreed to exempt them.
CEO Brian Moynihan acknowledged the negative effect in a January 27 interview on Bloomberg Television, saying that the change in policy “didn’t work out the way some people wanted it, so we fixed it.”
Brian Moynihan, CEO of Bank of America Corp.
Photographer: Andrew Harrer / Bloomberg
Even so, senior colleagues in corporate and commercial banking, a less powerful group, soon discovered that their premiums are still subject to vested restrictions. That’s when the complaint started, people said. In the past few days, employees have been meeting on calls to vent their frustrations and discuss options.
The decision touched on a sensitive point. Bank of America is torn by jealousy and long-standing divisions among its employees of more than 200,000, many dating back to the forced marriage to Merrill Lynch in the 2008 financial crisis. An unequal approach to compensation risks exacerbating these tensions in a time when most of the company is working from home and collaboration is poor.
Although compensation on Wall Street is always a balancing act, the circumstances were unusually complicated for Moynihan. Many dealers and bankers had a great year, thriving on the fluctuating markets, and expected to be rewarded. But Bank of America has tripled its credit loss provisions to more than $ 11 billion, anticipating that borrowers affected by the pandemic may default. Net income for the year dropped 35%.
“You have to pay for performance and the shareholder also needs to benefit,” said Moynihan in the interview.
Wall Street has been mostly conservative with 2020 pay. JPMorgan Chase & Co. and Goldman Sachs Group Inc. kept employee compensation in check, and Citigroup Inc. cut bonuses to dozens of top executives after the bank was scolded by regulators.
Read more: Wall Street becomes economical with employees after an unexpected pandemic
Throughout the process, Bank of America reduced cash payments and extended grace periods for normal stock premiums. Without the new bonuses, many executives would have faced payment cuts, according to the people.
In the interview, Moynihan said the company would be dividing a total of $ 10 billion to $ 11 billion in compensation for incentives for 2020. Investment bankers and traders typically receive a larger share of their earnings in shares than employees other parts of the company.
“Our bonus pools decrease year after year, but some teammates have made more money and others have earned less,” said Moynihan.
The provision of cliff-vest is especially problematic for longtime executives at corporate and commercial banks who hoped to qualify for what is known internally as the “60’s rule”. Previously, Bank of America allowed employees to retire with all deferred wages, provided their age plus a minimum of 10 years of service at the company was 60. This precious privilege now excludes new bonuses.
To exacerbate these frustrations, people said, is the decision to exempt investment bankers from restrictions on acquiring rights, seen as a gold shackle, but to apply them to corporate bankers. Both groups are part of the same division – global corporate and investment banking – managed by Matthew Koder.
These resentments have divided big banks for years. Across the industry, rainmakers who get billion-dollar merger mandates or high-value corporate finance are celebrated and can obtain eight-digit payment packages. Meanwhile, traditional bankers responsible for lower margin activities, such as loans or cash management, earn less to sense as second-class citizens.
Bank of America’s powerful chief operating officer, Tom Montag, who joined the Merrill acquisition, is widely seen as loyal to brokers and investment bankers. Some veterans in commercial banking to sense they are being unjustly punished for the pandemic, a calamity beyond their control, people familiar with the situation said.
– With the help of David Westin