The recent failures of a trio of midsize banks have once again raised questions on whether executive compensation is tilted toward short-term gains rather than companies' long-term health.
The arguments got little traction with senators on both sides of the aisle. Democrats and Republicans on the Senate Banking Committee criticized the executives for taking risky actions or missing obvious problems that directly led to the demise of their banks, while still accepting lucrative pay packages and bonuses, even in the days and weeks leading up to the failures.
Greg Becker, Silicon Valley Bank’s former CEO, took the brunt of the criticism from committee members, although Scott Shay, the former chairman and co-founder of Signature Bank, also came under fire. Signature President Eric Howell also appeared. A number of senators faulted the executives for failing to guard against the impact of rising interest rates. The Federal Reserve rapidly increased rates starting in March of last year, which reduced the value of large loans the bank issued as well as Treasury bonds the bank bought when rates were much lower.
Senators also used the hearing to address executive pay and whether senior executives in the U.S. are being rewarded more for short-term gains — like rising stock prices — than for ensuring their companies’ long-term health. Sen. Elizabeth Warren, D-Massachusetts, asked both Becker and Shay if they would forfeit any of their compensation to the Federal Deposit Insurance Corp., which covered their banks’ deposits after they failed.Warren called their response “just plain wrong,” adding “if we don’t fix it, every CEO for these multibillion dollar banks will keep right on loading up on risks and blowing up banks and everybody else is going to have to pay for it.
But executives also have a lot to gain if they can sell their stock before the share price takes a steep dive. In his testimony, Becker said his stock sale in February was was a planned sale.
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