The business hierarchy in the United States is a tried and trusted mechanism employed by most large corporations to manage their vast network of employees and to create the illusion of control and power, by paying whoever sits atop that hierarchy the biggest sum.
Not so at Bank of America, the nation’s largest bank by assets.
The receiver of TARP money has just made Thomas Montag its highest paid employee last year, by granting him $29.9 million in compensation as Head of Global Banking and Markets. Bank of America acquired the services of Montag after the shotgun wedding with Merrill Lynch, and was forced to pay such an amount as part of guarantees issued by Merrill when Montag joined that firm in 2008.
Montag is the president of the unit that includes trading and investment banking, and received more than four and a half times the pay that new CEO Brian Moynihan took home, at $6.51 million. All figures are according to regulatory filings.
Clearly Merrill Lynch knew what it was doing when it hired Montag with such a lavish pay package. Instead of generating direct benefits from his arrival at the firm, Merrill instead faced bankruptcy after the failure of Lehman Brothers and was sold to Bank of America in a highly controversial deal in 2008. John Thain, then CEO of Merrill, lost his job at the post-merger entity after spending more than $1 million redecorating his office. Thain is now CEO of CIT Group.
Bank of America found itself between a rock and a hard place, especially when it came to Merrill Lynch. Not only did brokers and executives leave the firm in droves during and after the acquisition, but Bank of America was stuck with huge losses in the $5 billion region that is the subject of investor lawsuits. Added to that, the bank had to meet compensation agreements entered into by Merrill Lynch at the height of silly finance.
Financial institutions find it increasingly appropriate to agree to humungous compensation agreements to stop employees leaving for higher pay at other firms. I wrote about this trend previously in an article here. Interestingly, former Bank of America head Ken Lewis, who retired last year, earned a cumulative total of $80 million in paper compensation. Montag is therefore 37.5% of the way to exceeding Lewis, despite the fact that he is not even CEO of the company and has been working there for less than 24 months.
Compensation for Montag included $29.3 million of stock awards and $586,539 of salary. The package included a $20 million restricted stock award set in May 2008 when Merrill Lynch hired Montag. The lender’s global banking and markets units, headed by Montag, reported a profit of $10.2 billion last year, helping offset losses from the company’s home-loan and credit-card businesses. Montag’s total compensation is among the highest reported by U.S. bankers this year. He such a superstar that even JPMorgan’s Jamie Dimon ($17 million) and Goldman Sachs CEO Lloyd Blankfein ($9.7 million) paled in comparison.
Montag is obviously a valuable person in the operations of Bank of America. Regardless, in my opinion his pay is totally out of sync with his peers. There cannot be any reason why he is more valuable than Dimon on Blankfein, who held the financial system together in 2008, or Ken Lewis, who built Bank of America into the giant it is today. As long as such ridiculous amounts and outsized rewards are paid for attendance rather than performance, the finance industry will continue to grapple with public opinion and all measures of sustainable business practice.
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