How the Pay Debate Has Been Changed

Proxy season is upon us, and I wonder whether bank CEOs will be any more sympathetic this year to the inevitable firestorm that their pay will provoke.

One could say the firestorm has been raging for quite some time now, but there's something about those annual corporate confessions of compensation, itemized in tables and footnoted in all their gory detail, that seems to breed a special sense of disgust every spring.

Banks have made some big changes to their pay practices since the crisis. But bank executives still earn far more than most people. So no matter how you slice it-stock versus cash, longer vesting periods versus shorter-the average American is going to look at the numbers and perks and still feel indignant.

It's tempting to discount public anger. If you're not a Wells Fargo shareholder, then what's it to you that the company plans to supply CEO John Stumpf with a part-time driver for two years after he retires? Mad that JPMorgan Chase covered CEO Jamie Dimon's closing costs on the home he sold in Chicago? Then sell your JPMorgan stock!

But this love-it-or-leave-it way of thinking ignores some of the central truths that have come to define the industry since, or in some cases because of, the crisis.

Truth No. 1: It matters what average people think, even if they don't hold stock.

The idea of public opinion really and truly mattering is a relatively new construct in the corporate world, and it has a lot to do with the technology that makes it possible for average Americans to air their grievances in potentially damaging ways, to potentially enormous audiences. The reason so many banks monitor social media is not just because they believe a swift and artful response can win back one aggrieved customer at a time, but because an aggrieved customer on the loose poses a major contagion risk that can hurt reputations. Just ask Bank of America about that.

Truth No. 2: Banks are still the villains.

People don't gawk at executive pay because of the potential harm to shareholders (though I've always thought they should). We gawk because it is natural to wonder what other people are worth (and to be incensed when it turns out to be so much more than the rest of us).

There's a new significance to all this now. The man on the street who used to think, "It's sick that bankers make so much money," now might think, "It's sick that bankers make so much money when I've been unemployed for three years and my savings are gone and I worry about my children's prospects in life as a result of a crisis that was caused by banks." That's a far more emotional sentiment, and therefore a more dangerous one for banks (see Truth No. 1.)

Truth No. 3: Another crisis will happen.

And it's unclear that the latest pay reforms will do anything to prolong the wait. (Given the nature of unintended consequences, they might even make things worse.) So banks that have gotten rid of the perverse incentives of the past deserve a pat on the back for having done so, but it doesn't absolve them from being responsive on the issue and willing to further change their policies.

But enough with the tough love. Let's talk about something happier, like the great stories you'll find in this month's issue. They include a terrific piece on the work Phil Flynn has done to rehabilitate Associated Bank, an important report on the fate of a foreclosure-related tax exemption, and an interesting look at why more banks of all sizes are eyeing trade finance as a tool for growth, customer retention and loan diversification. As always, I welcome your feedback.