The Securities and Exchange Commission has cleared the way for Bank of America shareholders to vote on a proposed requirement that its top executives have a portion of their annual pay deferred to cover future legal fines.
The regulator this month said it will allow the proposal to be included in the Charlotte bank’s proxy statement, a move that lets shareholders vote on it at the company’s annual meeting this spring. While it remains unclear whether the proposal will pass, shareholders at Citigroup failed to approve a similar proposal last year.
Such proposals underscore investors’ frustrations over large fines and settlements that have eaten into banks’ earnings since the financial crisis. Bank of America has paid billions of dollars to resolve its crisis-era matters.
Under the proposal by Bank of America shareholder Kenneth Steiner, a “substantial portion” of the annual total compensation of the bank’s executive officers would be deferred and forfeited to cover penalties tied to “any violation of law.”
That deferred compensation would be paid to the executives 10 years later, provided there were no fines over that period. In the event of violations that caused fines, executives’ compensation would be forfeited even if they were not determined to be responsible for the violations.
Bank of America had sought SEC approval to block the proposal from its proxy statement, but the regulator disagreed.
In its argument to the SEC, the bank cited federal rules that allow companies to exclude a shareholder proposal from a proxy statement if it deals with matters relating to ordinary business operations, according to a letter the bank sent the regulator.
The bank also told the regulator the proposal is broadly tailored, saying it “would apply to, for example, fines that could be imposed if a local branch of the company were found to have violated a city’s zoning or land use laws.”
A Bank of America spokesman reached Wednesday declined to comment.
Opposition by the bank’s management to the proposal could make it hard to win support from a majority of shareholders. Last year, two prominent firms that analyze shareholder proposals and advise investors how to vote recommended shareholders vote against the Citigroup proposal.
Supporters of using deferred compensation of financial firm executives to pay fines include William Dudley, president of the Federal Reserve Bank of New York. In a 2014 speech that criticized bankers’ behavior, Dudley said such a move would put more financial pressure on executives to identify bad activities or prevent them from occurring in the first place.
Dudley’s remarks have emboldened shareholders who hold similar views, such as Bank of America’s Steiner, who cites Dudley’s comments in his proposal.
A different shareholder at Citigroup also cites Dudley’s remarks in a similar proposal that Citigroup shareholders are set to vote on at its annual meeting this year. The bank failed to win SEC support to block the proposal from its 2016 proxy statement.