Wells Fargo & Co.’s board of directors took the unusual step Thursday of individually confirming chief executive and president Charlie Scharf’s total compensation of $24.5 million for fiscal 2022.
Typically, a publicly traded corporation discloses annual compensation for its top-five executives in a proxy filing that also serves notice of when an annual shareholder meeting will be held.
The bank said the 2023 proxy will be posted as usual in March.
Top-five executive compensation requires approval by the board’s independent members, in this instance for Wells Fargo upon recommendation from the board’s human resources committee.
The $24.5 million is about $3.15 million above Scharf’s total compensation for fiscal 2021 as listed in its 2022 proxy.
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However, the board said in Thursday’s filing that Scharf’s compensation was unchanged from 2021.
The compensation breakdown: $2.5 million base salary (unchanged from 2021); $5.4 million in incentive pay (up by about $35,000); a long-term performance share award valued at $10.8 million; and a long-term restricted share rights award valued at $5.8 million.
The filing was submitted as Scharf and the bank continue to struggle to resolve multiple legal and regulatory issues, some of which date back to October 2016 — when the fraudulent customer-account scandal erupted publicly.
Scharf took over as chief executive in October 2019 — the bank’s fourth since September 2016.
The board “expressed strong confidence in Mr. Scharf’s leadership in driving the continued transformation of Wells Fargo and values his on-going contribution and commitment to our shareholders, customers, communities and employees.”
Tony Plath, a retired finance professor at UNC Charlotte, said the Scharf compensation filing “is unusual here.”
“But the board is sending a signal to both Scharf and the market that it’s satisfied with his performance in what is clearly a difficult year for the bank.”
“The board doesn’t want to lose his services as the company CEO, but at the same time, given the bank’s poor fourth-quarter numbers and continuing regulatory problems, there’s just no way they could give him a raise this year.”
Plath said if Scharf were to resign or take another job, it would “really place the board in a pickle right now, since nobody they’d want to hire in the first place to replace Scharf would ever take the job there.”
Compensation formula
The board said 65% of Scharf’s total variable compensation is determined based on the overall performance of the bank, while 35% is determined based on the assessment of his individual performance against pre-determined goals set by the committee.
The board said Scharf could have earned up to $27 million by meeting all compensation targets.
“In assessing Mr. Scharf’s individual performance, the (committee) reviewed the significant body of work still necessary to transform the company.”
The company said it noted Scharf’s “strong leadership and demonstrated progress in addressing key risk and control issues, advancing our business interests and contributions to our communities, upskilling talent while building a diverse and inclusive workforce, and positioning the company for future success.”
“Based on these considerations and the overall company performance, the program design would have resulted in a total compensation above Mr. Scharf’s target of $27 million.”
However, Scharf asked the committee and the board to leave his compensation unchanged, citing “the remaining work left to be completed and therefore, (he) did not believe an increase in compensation level was appropriate this year.”
The board also cited “building and expanding a high-performance leadership team, improving succession readiness, and stabilizing key business and functional areas through focused and effective talent, leadership and culture initiatives.”
Another factor cited was “enhanced the customer experience through innovative products and services, including two new credit cards, new digital offerings for customers and helping customers avoid overdraft fees.”
Regulatory challenges
The board’s praise and vote of confidence in Scharf’s management comes as Wells Fargo continues to operate under the shadow of the Federal Reserve’s asset cap of $1.9 trillion placed on Feb. 3, 2018.
The Fed’s order prohibits the bank from increasing its total assets beyond what it had on Dec. 31, 2017. For banks, loans are considered assets.
In those five years, Wells Fargo also has had five chairpersons and substantial shake-ups of its board of directors and executive management team.
Several media outlets reported in September 2021 that Fed chairman Jerome Powell said the asset cap will remain until the Fed is confident that Wells Fargo has resolved a series of internal governance and risk-control issues.
In April, Scharf told analysts it could be several more years before the bank resolves enough legal and regulatory issues to be allowed by the Fed to grow its total assets.
On Dec. 21, Wells Fargo was ordered to pay $1.7 billion in fines and more than $2 billion in redress and compensation to customers by the federal Consumer Financial Protection Bureau.
Total legal and regulatory penalties are up to at least $11.14 billion since October 2016.
The board said part of Scharf’s compensation evaluation included factoring in “continued progress in addressing risk, control and regulatory issues, including reaching a broad-reaching settlement with the Consumer Financial Protection Bureau resolving multiple matters.”
Scharf told analysts on Jan. 13 that “we still have a series of consent orders, of which — and I always point this out — the asset cap is a piece of one of them.”
“So, all roads don’t lead to the asset cap. The roads in this respect lead to us building the proper control environment, which will satisfy ultimately all the consent orders.
“I’ve tried to be clear that we are making progress on that work, and hopefully, it’s done to the satisfaction of the regulators, but they’ll have to decide that,” Scharf said.
Regulators’ response
Meanwhile, CFPB director Rohit Chopra said in a Dec. 21 statement that “in the CFPB’s 11 years of existence, Wells Fargo has consistently been one of the most problematic repeat offenders of the banks and credit unions we supervise.”
“The list could go on and on, from defrauding the government to labor abuses and more.
“The Department of Justice, state attorneys general and other federal regulators have obtained billions more in forfeitures, including civil and criminal fines.”
The CFPB described Wells Fargo as “a repeat offender that has been the subject of multiple enforcement actions by the CFPB and other regulators for violations across its lines of business, including faulty student loan servicing, mortgage kickbacks, fake accounts, and harmful auto loan practices.”
Plath said the board is signaling to the bank’s regulators and congressional critics, led by Sen. Elizabeth Warren, D-Mass., that “it does — finally — understand the power of a prudential regulator, and members are willing to work toward real change inside the organization.”
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