I get two morning papers, the Wall Street Journal and the local Tulsa World. I usually look at the headlines on the front page of the Wall Street Journal and then read the Tulsa World. On Thursday morning March 29th , the front page of the Journal said, “Bank of America CEO, Brian Moynihan, was the only one of the bank’s top executives not to receive a cash bonus for last year.” That seemed reasonable to me given the bank’s struggles in the Great Recession over the last few years, and I thought that might quiet some of the Occupy People’s outcry over executive pay.
A few minutes later, I picked up the morning’s Tulsa World and the business page had this headline: “Bank of America’s CEO’s 2011 pay jumps sixfold”. I thought maybe I’d switched to different universe when I switched papers. What’s going on here? How can both headlines be accurate?
The Journal article, not unexpectedly was longer and contained more detail. But the facts common to both articles were not in disagreement. Mr. Moynihan became CEO of BOA in 2010, inheriting a litany of problems that the bank had previously. The BOA stock price declined “more than half” said the TW and by 58% reported the WSJ. His 2011 pay package reported by both articles was approximately $7 million including a salary of $950,00 and $6.1 million in stock (“restricted stock” said the Journal). Both articles reported that BOA generated a $1.4 million profit in 2011 compared to a loss in 2010.
While the facts reported in both articles were consistent, the whole tone and tenor of the two articles differed markedly. The TW enumerated the items in the pay package, but did not point out the absence of a cash bonus. Those accustomed to seeing breakdowns of executive pay would have thought the absence of a cash bonus unusual and would probably have noticed it missing. However, the casual reader would probably not have noticed the missing cash bonus. The WSJ on the other hand, not only noted that fact but went on to point out that 3 other BOA executives had both cash bonuses and higher total compensation than Mr. Moynihan. The WSJ conclusion was that the “board is holding Mr. Moynihan responsible for the company’s [stock price] performance” in 2011. The WSJ also went on to point out that 5 executives of two other large banks – Wells Fargo and Citigroup – received more in total compensation than Mr. Moynihan. In the case of the CEOs of those two banks the compensation in 2011 was more than double what Mr. Moynihan got.
Are both these articles accurate? As far as the “facts” they reported the answer is no doubt “yes”. Are they slanted or biased? Here again the answer is no doubt “yes” in both cases. The WSJ article omitted the increase in compensation between the two years and the TW failed to mention the missing cash bonus or provide any context in terms of comparison to other, similar size banks. Although both articles probably don’t tell the whole story and both headlines are sensationalized, I believe that the TW is more slanted and sensationalized.
The compensation package given the CEO is more than ample to live on, but compared to other similar CEOs it is not particularly generous as the WSJ pointed out. This, by itself would seem to indicate that the board is not totally satisfied with his performance. The absence of a cash bonus is significant for the reasons cited by the WSJ. The lack of its mention in the TW is either bias or ignorance. For organizations, such as banks, now trying to build cash reserves, the absence of a cash bonus would seem prudent regardless of the CEO’s performance. The offering of stock is supposed to provide incentive for improving company performance – particularly stock restricted as to when it could be sold (what type restrictions were not reported by either article). If company performance does not improve and the stock price continue to fall, those shares would certainly be worth a lot less than reported. On the other hand, a strong recovery might make them worth more. Cash is for today, restricted stock is for tomorrow. The board would seem to have an obvious desire to see the company’s performance improve and the structure (if not the amount) of the CEO’s compensation would seem reasonable based on where the Bank currently stands. My guess is it’s more reasonably structured than the other two banks in the WSJ article. Why the BOA CEO compensation is less than three other executives is certainly unusual and would be interesting item for speculation.
The news media in general would have us believe that because they are accurately reporting the “facts” that they are fair and unbalanced. Don’t believe it. We all have our viewpoints and perspectives and it’s difficult not to have them influence the way we see things. But when your job is to attract readers and viewers, it makes it even more difficult. The tendency is to make it all sound “sensational” which by its very nature is also going to make it slanted. We’re in political season, so it’s only going to get worse. If we voters don’t take the time for some informed rational thought, we’re all in trouble.