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Stock options could result in big windfalls for executives whose companies received bailout money.
SAN FRANCISCO — The financial bubble popped last year, but the bubble in pay for executives who helped inflate it is proving more resilient, according to a study released Thursday.
Banks and other financial-services companies that got tens of billions of dollars in government support during the financial crisis gave top executives stock options this year that could result in huge windfalls, undermining claims that the current compensation system is based on pay for performance, according to results of the study by the Institute for Policy Studies.
Executives at J.P. Morgan Chase, Wells Fargo, American Express, Capital One Financial, PNC Financial and SunTrust Banks were granted 5.8 million stock options in early 2009, as the stock market was creaking and the companies’ shares were at low levels, the study said.
Those firms received billions of dollars from the Treasury Department’s Troubled Asset Relief Program, or TARP, and benefited either directly or indirectly from many other injections of government money into the financial system, including the bailout of American International Group, Fannie Mae and Freddie Mac, increased deposit guarantees from the Federal Deposit Insurance Corp. and a huge program by the FDIC to guarantee bank debt.
As stock markets rallied and shares of financial-services companies surged, the value of these stock options jumped to almost $87 million, as of Aug. 14, according to the Institute for Policy Studies.
That potential windfall is shared between 17 executives, which equals more than $5 million per person, according to data from the study.
“America’s executive pay bubble remains unpopped,” said Sarah Anderson, director of the Global Economy Project at the Institute for Policy Studies and lead author of the study.
Kenneth Chenault, chief executive of American Express, may get the biggest pay-off. His options were worth almost $18 million on Aug. 14, the institute calculated.
Options granted to Richard Fairbank, CEO of Capital One, were worth more than $16 million on Aug. 14, the study found.
Options granted to James Rohr, CEO of PNC, were valued at more than $7 million on Aug. 14, according to the study.
Options granted to Charles Scharf, CEO of Retail Financial Services at J.P. Morgan, were worth almost $7 million on Aug. 14, the study said.
Defenders of the current executive compensation system say that while executives may be paid a lot, the money is tied to performance, which encourages them to work hard for shareholders.
Stock options are cited as a good example of this. When markets crashed last year, many executives saw their compensation plummet as shares of the companies they ran fell below the strike price of their options, leaving them worthless, or “underwater.”