(Bloomberg) – Anger builds in senior ranks at Bank of America Corp. after the company renounced an unpopular new bonus policy for top traders and traders while keeping the plan in place for other employees.
At issue is a grant of company stock that high earners – usually those earning $ 1 million or more – received for the first time as part of their 2020 remuneration. Instead of settling in equal shares over a set period of time, as such awards usually do, there is a “crown vest” provision that the shares can only take into account at the end of four years.
People who know the situation have described an internal drama that has unfolded over the past few weeks.
Initially, the bank planned to apply the new payment structure broadly. But veterans in investment banking and trade revolt when they hear they have to stay until 2024 to pick bonuses for 2020, and management has agreed to release them.
CEO Brian Moynihan acknowledged the setback in an interview on January 27 on Bloomberg Television and said that the change in policy ‘does not work the way some people wanted, and therefore we have rectified it.’
Yet senior colleagues in corporate and commercial banking, a less powerful group, soon realized that their awards were still subject to the settlement restrictions. That’s when the whining started, people said. Over the past few days, employees have gathered to vent frustrations and discuss options.
The decision touched a raw nerve. Bank of America is torn apart by long-simmering jealousy and division among its staff of more than 200,000, many of whom date from the shotgun marriage to Merrill Lynch in the 2008 financial crisis. An unequal approach to compensation could exacerbate tensions at some point on which the bulk of the business operates from home and is the collaboration of a premium.
While compensation on Wall Street is always a balance, conditions were extremely difficult for Moynihan. Many traders and bankers had a wonderful year when the markets swung, and they expected to be rewarded. But Bank of America has tripled its provision for credit losses to more than $ 11 billion, with the prospect of defaulting on lenders. Net income for the year fell by 35%.
“You have to pay for the performance, and the shareholder has to benefit from it too,” Moynihan said in the interview.
Wall Street was mostly conservative with 2020 pay. JPMorgan Chase & Co. and Goldman Sachs Group Inc. kept employee compensation in check, and Citigroup Inc. reduced bonuses for dozens of top executives after the bank was reprimanded by regulators.
Bank of America has reduced cash payouts throughout and extended the settlement periods for normal grants. Without the new bonuses, many managers would have encountered the pay cut, according to the people.
In the interview, Moynihan said the company would split a total of $ 10 billion to $ 11 billion in incentive compensation for 2020. Investment bankers and traders usually get a larger share of their salaries than employees elsewhere in the company.
“Our bonus pools have decreased year-on-year, but some teammates earn more money and others earn less money,” Moynihan said.
The provision of a wreath vest is particularly problematic for long-term executives in corporate and commercial banking who expected to qualify for what is internally known as the ‘rule of 60’. Previously, Bank of America had employees retire with all deferred payment, provided their age plus a minimum of ten years with the company was equal to 60. The valuable condition now does not exclude the new bonuses.
The people aggravated the frustration is the decision to release investment bankers from the settlement restrictions, which is seen as a golden shackle, but to enforce it for corporate bankers. Both groups are part of the same division – Global Corporate and Investment Banking – managed by Matthew Koder.
Such resentments have divided large banks for years. Across the industry, rainmakers who have won multimillion-dollar merger mandates or corporate financing with big tickets are ashamed and can deduct eight-figure pay packages. Meanwhile, traditional bankers responsible for lower-margin activities, such as loans or cash management, earn less and feel like second-class citizens.
The powerful chief operating officer of Bank of America, Tom Montag, who started with the Merrill acquisition, is widely regarded as loyal to traders and investment bankers. According to the people familiar with the situation, some veterans in commercial banking believe that they are being unfairly punished for the pandemic.
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