American Express Co. faces many challenges over the way it operates, but the CEO's 2012 compensation signals that the company is focusing on its strengths.
Amex revealed this week that Chairman and CEO Ken Chenault received $28.5 million in 2012 counting deferred payments, an increase of 23.7% over the previous year. The increase may seem conspicuous for a company facing fines of up to $112 million from the Consumer Financial Protection Bureau over practices that prompted refunds to cardholders. Amex also began the year by announcing plans to trim 5,400 jobs, with the company's travel business taking the brunt of that cutback because of advances in digital technology and mobile payments.
But even when Amex announced its layoffs, it emphasized the investments it made in technology and new products, such as the Bluebird prepaid card it offers with Walmart.
"There is no doubt the company's branding positioning has changed," says Sameer Gokhale, senior analyst with Philadelphia-based Janney Montgomery Scott LLC. "The company was viewed as targeting only the affluent, but now Walmart customers bring an entirely different demographic."
Otherwise, Amex is like any other company facing new challenges with the economy and rapidly changing payments industry, Gokhale says. In fact, Amex has "outperformed their peers" in many ways, says Gokhale, who advises investors on Amex's performance.
Thus, there is "nothing unusual" about the pay Chenault earned, Gokhale says. "Much of a CEO's pay is based on deferred payments tied to future performance, and that's appropriate," he adds.
Chenault’s direct compensation for 2012 was $22 million, less than the $24 million he earned in 2011, says Marina H. Norville, vice president of corporate, financial and risk public relations for American Express. "Because of those regulatory actions, his salary did go down," Norville says.
The company’s SEC filing last month shows Chenault’s earnings at $28.5 million when deferred payments based on past performance were added, Norville says.
"The CEO’s salary is based on achievement goals and long-term incentives," she adds.
In its research note of March 12, JPMorgan Chase raised its target price on Amex stock from $61 to $63 with an "underweight" rating. The company faces future challenges, at least partly because the confidence of high-end consumers "is disproportionately at risk due to policy initiatives strongly favoring middle-income consumers," Chase says.
Janney reiterated its "neutral" rating on Amex, with a $64 target price on the stock, essentially viewing Amex as a company that will perform as well as any other in the payments sector.
Amex has not suffered any type of negative backlash for targeting a new audience, Gokhale says. "The cards for affluent customers and the rewards programs are not changing, so we have not heard any cardholders say anything negative [about new products]," he adds.
Amex has positioned itself well in what has become a rapidly changing payments world by embracing social media and new technology, Gokhale says. The company's promotion with the latest Halo video game — Amex offered statement credits that covered over half the game's cost — shows it is trying to figure out the best way to connect with consumers, he adds.
"There is not a big payoff now, but the company is staying ahead of any disruption by investing in various initiatives so they can help shape those new forms," Gokhale adds. "But no one knows right now which payments technology will take off."