American Express

Proxy published: 3/30/2015

Annual meeting: 5/11/2015

Kenneth Chenault, who joined the company in 1981 and became CEO in 2001, had total compensation of over $22,796,083 for 2014.  As in past years, a significant component of this pay was in equity awards ($12.5 million in stock awards, $2.5 million in options.)  He realized an additional $26 million in the exercise of 737,500 stock options, and $19 million through the vesting of awards.  Based on the ownership table, however, it is clear he did not keep the vast majority of the stock.

In 2015, Chenault had reported ownership of 965,624 shares of stock, up from 935,671 the previous year, but a small fraction of all the shares that had been awarded to him as compensation over his years of service.  A positive governance feature of American Express is that it requires that 50 percent of net shares based on restricted stock units earned under annual incentive awards be held for one year past retirement. It is unclear how many of the shares reported in the stock ownership table are those Chenault is required to hold.

Several of the red flags that placed American Express on our overpaid list had to do with the excessive and repeated equity grants. Despite a high continued level of awards and repeated exercises of options, Chenault owns fewer shares today than he did in 2009. In other words, equity awards for American Express’s CEO are factors in wealth accumulation rather than alignment.

It is also of interest that Chenault still has the right to purchase over a million options that were issued in 2009, in the midst of the financial crisis, with a strike price of $16 dollars.  The options granted the following year have a stock price of $38 dollars. The change in stock price over that year was not due to one executive or even the actions of one company, but larger economic factors. But Chenault and other executives benefited disproportionately from the recovery. (Shareholders who bought at the bottom of the market also did well, but shareholders who were simply riding out the market did not reap outsize gains.)

Finally, American Express has a generous perquisite program. Under a subtable on perquisite, the company reports personal use of aircraft for Chenault was $181,638, and “local and other travel benefits” of $23,377. At what point has an executive accumulated enough wealth that it would be reasonable to suggest that he, rather than the company and its shareholders, foot these charges?  Does he really need an extra $35,000 perquisite allowance? Can the company afford the optics created by such a situation?

American Express is in the news lately because beginning in 2016 it will end its special relationship with Costco.  (Costco members account for approximately 10% of American Express cards). Interesting to note in that context how much lower CEO pay, and particularly perquisite pay, is at Costco.