UPDATE: June 24, 2021: About three-quarters of the approximately 815 million Mastercard shares cast Tuesday were in favor of the company's executive compensation proposal, while about a quarter were against it, according to a filing Wednesday with the Securities and Exchange Commission. Less than 1% abstained.
"We're pleased to have received their support and recognition of the efforts of our teams in delivering value to our stockholders, customers and partners," Mastercard spokesman Seth Eisen said.
Nonetheless, opposition to the compensation proposal was substantially higher than against any other proposal on the proxy. Eisen did not comment on the opposition.
- Mastercard Executive Chairman Ajay Banga’s $27.7 million pay package — and compensation for other executives at the card network — has drawn criticism from the research firm Institutional Shareholder Services. ISS, which advises institutional shareholders, recommends a vote against Mastercard's executive compensation proposal at the card giant’s annual meeting Tuesday.
- Shareholder support for the executive compensation proposal “is not warranted” largely because of Mastercard's goal adjustments related to the COVID-19 pandemic, ISS said in its June 7 report on Mastercard’s proxy proposals. “Half of the annual incentive payout continues to be based on a subjective assessment of individual performance and there are significant concerns regarding COVID-related compensation adjustments.”
- By comparison, Banga's $27.7 million would surpass all but two CEOs among the largest U.S.-based banks.
Banga relinquished his role as Mastercard’s CEO on Jan. 1. The package, however, covers 2020, Banga's last year in the CEO role. Michael Miebach, the company's president in 2020 and Banga's successor as CEO, received $9.2 million in 2020, according to the card network's April 29 proxy filing with the Securities and Exchange Commission (SEC). The vote on executive pay at the annual meeting is a nonbinding shareholder referendum on pay policies.
Banga’s proposed $27.77 million compensation includes a $1.25 million salary, $19.66 million in stock awards, $3.53 million in stock option awards, $3.13 million in incentive pay and $210,000 in other pay, according to the filing. The total was 19% more than the $23.25 million he earned in 2019, the filing showed.
A number of top executives in the banking space saw their compensation fall in 2020 as the COVID-19 pandemic cut into banks' profitability. Bank of America slashed CEO Brian Moynihan's compensation by 7.5% to $24.5 million. Wells Fargo's Charlie Scharf saw a 12% drop to just over $20.3 million as the bank in July suffered its first quarterly loss since 2008.
Penalties took their toll on other CEOs' paychecks. Goldman Sachs clawed back $10 million of what it would have given CEO David Solomon over the bank's involvement in the 1MDB scandal — putting his compensation at $17.5 million. Michael Corbat, the now-former CEO of Citi, saw his compensation drop 20.7% in 2020 to $19 million after his bank drew a $400 million fine from the Office of the Comptroller of the Currency in October.
Among bankers, only Morgan Stanley CEO James Gorman and JPMorgan Chase CEO Jamie Dimon out-earned Banga. Dimon's pay remained unchanged from 2019 at $31.5 million Gorman made $33 million in 2020 — a 22% raise that could largely be seen as a reward for guiding Morgan Stanley through two of the largest mergers and acquisitions since the 2007-08 financial crisis: a $13 billion takeover of E*Trade in February 2020, and the October move to acquire fund manager Eaton Vance for $7 billion.
ISS, which has for years reviewed corporate proxy statements, approved Mastercard’s other proposals, but not the one on compensation. It took issue with executive performance goals being adjusted for COVID, making them easier to achieve. In two categories, the adjustments led to payouts that otherwise wouldn’t have happened, ISS said.
ISS cited adjustments to performance metrics related to periods that preceded the pandemic. “Although some investors have expressed a degree of flexibility regarding adjustments to short-term awards, adjustments to (2018) closing-cycle equity awards are not viewed as an appropriate reaction to COVID-related disruptions,” ISS said in its report.
In a proxy amendment filed with the SEC this month, Mastercard acknowledged ISS’s opposition and countered it, arguing that “COVID-19 created unprecedented circumstances which rendered our pre-established performance goals obsolete based on business factors outside of management’s control,” specifically a decline in consumer spending and cross-border travel.
The company also noted in the June 10 amended filing its board's human resources and compensation committee reviewed the unique 2020 situation and determined that compensation was aligned with the company’s “strong” total stockholder return. The panel also noted that Mastercard managed to retain employees during the pandemic and the CEO transition “amid a competitive market for talent” and ensured employees were motivated in a “critical period of significant change.”
Seth Eisen, a Mastercard spokesperson, declined to comment beyond the filing but pointed to its concluding remarks. "COVID-19 created unprecedented circumstances, and our employees rose to the challenge," the company wrote. "The [committee] believed these factors warranted a holistic adjustment to reflect our employees’ tremendous efforts."
Mastercard’s 2020 annual revenue declined 9.4% to $15.3 billion, compared with 2019, and its net income slid 21% to $6.4 billion.
Mastercard puts the “say-on-pay” proposal to a shareholder vote at its annual meeting as a way to let public market stakeholders endorse or reject the company’s approach to compensation. The company said in its proxy that it asks for “advisory approval” of the already-paid compensation because it shows whether its compensation “philosophy, policies and practices” align with shareholders’ views.
The SEC began requiring say-on-pay proposals in 2011 as part of the 2010 Dodd-Frank Act. The issue remains controversial, with ongoing protests this proxy season, particularly with respect to companies that adjusted their goal lines due to COVID. At least 13 Standard & Poor’s 500 Index companies this year have failed to persuade even half their public shareholders to vote in favor of their compensation proposals, according to a Financial Times report, which cited ISS for the tally.
ISS estimated Banga’s 2020 compensation at a higher level than the company did, saying it was $29.45 million. That was 1.75 times higher than the $16.81 million average for CEOs in an ISS peer group, and 1.51 times higher than the company’s peer median, ISS said. ISS also noted Banga’s pay was 210 times more than the $132,114 earned by the average Mastercard employee.
Companies routinely base executive pay on compensation earned by executives at peer companies, but averages vary depending on which comparable companies are included. ISS noted that its peer group for determining appropriate pay levels at Mastercard had some overlap with the company’s group, but also included some companies Mastercard didn’t and left out some the company included.
ISS recommended shareholders support say-on-pay proposals for Mastercard's U.S. rivals Visa, Discover and American Express.