The Ken Lewis Pay Refund Puts Teeth In �Pay For Performance
Bank of America CEO Ken Lewis didn’t exactly make bank in 2009. USA “Pay Czar” Kenneth Feinberg told Lewis to pay back approximately $1M of a $1.5M base salary in light of the $2.24B loss the bank incurred in the third quarter under his leadership.
This repayment signals stricter pay-for-performance standards. While I’m not in a position to comment on the precise details of Lewis’s compensation structure, stronger links between pay and performance make sense. I don’t know if the government-led process was the right means to this end. But the result is right on. BAC avoided a “golden-parachute” P.R. fiasco. This may not dampen public anger at executive compensation on Wall Street, but it avoids further inflaming it.
Mr. Lewis’s mismanagement reflects an unbalanced approach to risk management. Why should a board pay up for poor judgment?? Mr. Lewis’s punishment is well-deserved. He is paying the price for risky bets and a short-term strategy. “Pay for performance” only works when we don’t pay for poor performance.
I’m working on a piece that I’ll post next week on the banks. I want to highlight that not all banks are Bank of America. Not all CEOs deserve pay cuts. Jamie Dimon at JPMorgan Chase and Lloyd Blankfein at Goldman Sachs reported $3.1B and 3.19B earnings respectively, an accomplishment made possible by principled, savvy leadership