[ by Larry Goldfarb ]

Big bank chiefs are about to cash in on a great windfall.  Its ironic that in many cases, their poor judgment and inadequate performance contributed to their riches.  In short, stock options granted in 2008 at the depths of the financial crisis, when the S&P was touching 700 are now worth many times more.  It does not hurt that the market is reaching its all time highs.

The top executives at those 18 financial institutions received an aggregate of $142 million in stock and options from July 1, 2008, to June 30, 2009.   It was a lot then, but these stock and options are now worth $457 million, an increase of $330 million, or 221%.  On average, that is roughly $4 million per executive who received such compensation.

Individually, some of the gains are even more breathtaking. 

Take American Express and its chief executive, Kenneth I. Chenault. In 2007, before the financial crisis, American Express was trading for years at $50 to $60. Then the crisis hit, and in six months the stock fell below $10 a share. In January 2009, American Express granted its top five executives stock options with a strike price of $16.71, which Equilar values at $7.63 million. According to American Express's public disclosure, Mr. Chenault received the largest grant of 1,196,888 options.

American Express stock is now back to about $57 a share.  And that equity package is up 1,097% and valued at $91.36 million. Mr. Chenault's option package alone is now valued at almost $50 million. That's a nice payday. Can anyone argue that it is owed to the executive's performance rather than to a recovery in the stock market?  American Express did not respond to requests for comment.

All told, 8 of these 18 firms, including Wells Fargo and SunTrust banks, gave executive pay packages during the financial crisis that are now more than 200 percent higher in value.  Four of these financial institutions - BB&T, U.S. Bancorp, Capital One and American Express - awarded pay packages that are up more than 400%. Almost all of this value is attributable simply to the stock market's recovery.

How could this happen, you may ask?

• The bank executives who stood to make the most were those who were paid more in options than in stock.
• Many of the financial institutions did not adjust the dollar amount of their financial compensation paid that year to take into account the stock market drop
• Moreover, lower-ranked employees who received equity compensation, which is largely undisclosed, may have also received such a windfall.

Taken together, this is a sobering view of executive compensation. It shows how compensation can have little to do with performance and more with stock market movements and the luck of having options granted instead of less valuable stock.  More tellingly, it also shows how the government most likely enriched financial executives by pushing banks to award more equity compensation through TARP than they otherwise would have.

The sad thing is that these executives were compensated not because of the work they did at their firms, but because of a lucky rise in the stock market. It is anything but pay for performance.  And yes, if the financial crisis had not occurred, they were likely to have been much poorer otherwise.  It's no wonder Main Street is still seething.

For further details, go to [Dealbook, 10/2/12].