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