Getting investments on the cheap earlier this year is yielding big rewards for Wall Street's top brass: Thanks to the rebounding stock market, two credit card company chief executives have seen their compensation jump by more than $34 million while 22 other top bank execs also saw rich gains, according to a new report released today.
A study by the Institute for Policy Studies has found that the value of stock options granted in early 2009 to American Express Chief Executive Kenneth Chenault rose by nearly $18 million as of mid-August. Fellow CEO Richard D. Fairbank, of Capital One, saw his stock options grow by $16.3 million during the same period.
IPS, a liberal think tank, found that Chenault and Fairbank were among two dozen executives at eight major financial institutions to see their 2009 stock options jump by a total of nearly $90 million.
"It's all pretty outrageous how they stand to turn the crisis into more windfalls," said Sarah Anderson, an executive pay analyst and one of the authors of the IPS study.
The banking industry defends stock options, or the right to buy stocks at a set price, as an effective way to give executives incentives to focus on the long-term performance of their companies instead of just short-term gains. Excessive risk-taking by short-sighted bankers is widely viewed as one of the main causes of the current recession.
Most of the stock option packages reviewed by IPS don't actually allow executives to exercise the options -- buy the stocks -- and sell them for three to five years after they were awarded. In the past, such waiting periods were often capped at just six months, said Scott Talbott of the Financial Services Roundtable, the trade group that represents the country's biggest banks.
Today, "it's not the quick quarter-by-quarter profit that executives benefit from -- it's the long-term, sustained growth of the company," Talbott said.
American Express spokeswoman Joanna Lambert said the increase in Chenault's portfolio reflects AmEx's rising share price which, she said, "is a good thing for all shareholders." The company's shares reached a low just under $10 in March and have since rocketed to over $30.
Capital One told ABCNews.com in an e-mail that Fairbank's compensation has been based exclusively on stock awards -- not cash salary, bonuses or retirement contributions -- for the last 11 years.
But critics like Robert Howell say the banks had no business awarding "boatloads of options" in the first place.
Financial institutions survived as "a result of federal funds being poured into shore it up," said Howell, a visiting professor at the Tuck School of Business at Dartmouth College. "These folks didn't do anything substantial to justify these 80- or 90-million dollars in rewards."
All of the firms reviewed by the IPS have received billions in aid under the government's Troubled Asset Relief Program, though at least four -- JPMorgan, Wells Fargo, Capital One and American Express -- have since returned the cash.
This year's stock "windfall" examined in the IPS report results from the firms awarding of hundreds of thousands of company stock options to top executives when stocks were sinking earlier this year. Their portfolios skyrocketed in value after stocks rebounded, with share prices on some financial stocks, including American Express and Capital One, shooting up 90 percent or more. Shares of JPMorgan, Wells Fargo and Sun Trust more than doubled.