Executives From Failed Banks Face Senate Grilling Over CEO Pay, Bonuses and Risk Management

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Executives from two large U.S. banks that failed dramatically in March appeared in front of the Senate Banking Committee on Tuesday to respond to questions about why their banks went under and what regulators could have done to avoid the calamities.

DePaolo did not appear in front of the Senate on Tuesday due to health concerns; instead Signature's co-founder and the bank's president agreed to testify.

Sen. John Kennedy, R-Louisiana, called the bank's interest rate management “bone deep, to the marrow, stupid.” Clawing back CEO pay has gained bipartisan attention despite the fierce divisions between the two political parties. The bill is sponsored by Elizabeth Warren, D-Ma., Josh Hawley, R-Mo., Catherine Cortez Masto, D-Nev. and Mike Braun, R-Ind. The White House, while not endorsing the specific bill, has called on Congress to pass laws to reform how bank CEOs are paid in the event of a failure.

Executives at big companies also tend get most of their pay each year in company stock. That means CEOs and other insiders have much to gain if the company's stock rises. And shareholders typically like it this way. The thought is that by tying a CEO’s compensation to the stock price, it better aligns their interests with shareholders.

The method, known as the 10b5-1 rule, lets insiders enter into written plans to buy and sell stock in the future. The goal was to let insiders make trades, but not when they have their hands on material information not available to the public.

 

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