American Express is breaking records, but not the kind you might think. Its chairman and chief executive Ken Chenault received an astounding $28.5 million in 2012. That an almost 25% increase from 2011 – and that makes him the highest paid CEO of any American bank or credit card company.
Less than Stellar Operations
Here’s the rub though – American Express has been in the crosshairs of the Consumer Financial Protection Bureau for awhile now. Already, it’s been ordered pay millions in fines and reimbursements to its customers. CFPB ruled it was acting illegally. In fact, three of the card companies sister companies were ordered to pay back more than $85 million. It was accused of signing up customers to credit protection programs without telling them, it promised cash back bonuses that were never delivered, it was tacking on late fees that consumers did not owe and it discriminated against new applicants who were past a certain age. Finally, CFPB found that it misled its customers about debt collection policies. Just a few weeks ago, American Express announced it had found further billing errors on its own and that it was in the process of refunding another $153 million to its customers. Most CEOs wouldn’t survive such massive PR scandals and unethical business practices.
Remember, less than a year ago, Yahoo CEO Scott Thompson, who had been in his role as CEO for just four months was kicked to the curb when it was discovered he’d “padded” his resume. And the founder and CEO of Best Buy, Richard Schulze made his exit last summer when board directors decided he didn’t handle the knowledge of Brian Dunn’s relationship with a subordinate in a way that did not violate the company’s ethics.
And, too, you may recall that these excessive compensation packages have been under the microscope recently. In fact, last year, Citigroup shareholders laughed when it was asked to approve a similar compensation package for then-CEO Vikram Pandit. Not long after that, he too made his exit.
It’s All Out There
Myrna Hellerman, a management and board adviser with Sibson Consulting told USA Today,
The controlled cloak of what was happening at companies that leadership may have been able to control 20 years ago has really been torn away by disclosure mandates required under Sarbanes-Oxley and other legislative and regulatory acts.
When the announcement was made of this impressive salary and bonus package, American Express insists its board’s compensation and benefits committee carefully weight both the recent settlements with CFPB and the overall performance of the credit card giant. Still, it felt Chenault was deserving of what amounts to a base salary of $2 million, a $4 million bonus, stock awards valued at $18.9 million, option awards valued at $2.2 million and other payments. This was all part of the financial company’s annual proxy that must be filed with the Securities and Exchange Commission.
Merchants Fees Enough?
There are a few justifications, perhaps, that might provide justification in the eyes of the committee. First, American Express is the largest credit card issuer based on consumer spending and it also has the lowest delinquency rates in the industry. Some argue that’s because the company does rely as heavily on revolving loan revenue due to its “top line” merchants fees. That’s not enough, though – especially when you consider the company announced less than two months ago that it would be cutting more than 5,000 jobs this year. Its reason was that it was being “reinvented” due to the latest technology and digital advances. It says it wanted to focus on the future of mobile payments.
As mentioned, the card company announced it had found problems during its own self regulation efforts. Those problems included $28 million that had been collected in late fees from consumers who never received statements, $24 million that had been collected in interest but that was found to be erroneous and bonuses due to its rewards programs that should have been credited to its customers’ accounts, but weren’t.
CFPB Director Richard Cordray said,
American Express will identify the harmed customers, notify them, and make sure they get back their money.
Among the specifics, CFPB discovered Amex:
- Deceived consumers who signed up for the American Express Blue Sky credit card program by misleading consumers that they would receive an additional $300 bonus at sign up. This violated federal banking laws.
- Amex discriminated against new applicants by using an algorithm that adjusted the approval process for applicants over the age of 35. This was in violation of the Equal Credit Opportunity Act.
- CFPB also found that it failed to report consumer disputes to consumer reporting agencies, which is also a violation of the Fair Credit Reporting Act.
- Misled consumers about debt collection: by telling them there were benefits to paying off old debt.
Specifically, they were told that if they paid off the debt, it would improve their credit scores. The problem was, it never reported payments to the credit bureaus and in most instances, the debt was so old that it wasn’t even on their reports any longer, which means the payments didn’t show on their reports, either.
For those who were discriminated against, they were informed that they could re-apply. The millions of consumers who lost money due to misleading statements received reimbursements and the consumers who believed by paying debt that was no longer on their credit reports were also refunded – with interest – along with a $100 and a pre-approved American Express credit card that both the CFPB and FDIC approved. Those payments and solutions were ordered to be in place by March 15, 2013 – which is this week.
The question is why Chenault – or any CEO – whose company faced these kinds of scandals and accusations would be worth the kind of money he’s being paid. It makes no sense, especially considering the new laws, the consumer watchdog groups, the economy, the absence of jobs and raises and bonuses in most companies around the nation and frankly, the less than ideal public image Americans are forming over the financial sector as a whole.
What do you think? Is Chenault worth it or should he face the hard questions that anyone else would whose company hit so many failures?
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