By Paul Hodgson
May 13, 2014

FORTUNE — Wall Street banks are no strangers to protest, but this year’s annual meetings at Morgan Stanley (on May 13), Goldman Sachs (on May 16), and JPMorgan (on May 20) could be especially stormy.

Glass, Lewis & Co., a leading proxy-advisory firm, has recommended that shareholders at these big banks vote against management proposals known as “say on pay” — the advisory vote on executive compensation that all companies are required to hold each year.

Part of the Dodd-Frank Act, say on pay is a mandatory, non-binding shareholder resolution offered by a company’s management that asks investors to approve the compensation packages given to a company’s named executive officers.

Glass Lewis has recommended that shareholders vote against the reelection of James A. Johnson, Goldman’s compensation committee chairman — who, incidentally, has sat on Target’s board of directors for 18 years and may face challenges there, as well as at Goldman. The proxy advisory firm has also lowered Goldman’s pay grade to an F, from the D it received in 2012 and 2013. David Wells, a spokesman for Goldman Sachs (GS) declined to comment for this story.

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At Morgan Stanley (MS), Glass Lewis lifted the bank’s pay grade from an F to a D this year, but since this is still a failing grade, Glass Lewis also recommended a vote against pay. The same happened for JPMorgan (JPM), a rise from an F to a D, and a vote against the bank’s pay plan. Neither Morgan Stanley nor JPMorgan responded to requests for comment.

Rival proxy advisory firm Institutional Shareholders Services gave all three banks a passing grade and did not recommend a vote against pay, though it voiced concerns over Goldman’s pay plan.

Losing a say on pay vote is not common. According to pay advisors Semler Brossy, a survey of more than 2,200 companies in the Russell 3000 shows that approximately 91% of the companies passed with over 70% shareholder approval in 2013. The total number of companies that failed was only 57. Not only that, but since this is an advisory vote only, companies do not have to make any changes as a result, though most do.

At Bank of America (BAC), which had its annual meeting on May 7, there were no recommendations to oppose pay, and the bank’s executive pay proposal passed with ease despite the fact that CEO Brian Moynihan’s compensation increased dramatically, with headline compensation increasing by almost 60%. Shareholders may have been distracted by the recent revelation that the bank overstated its capital by $4 billion and were more concerned with voicing complaints about the audit committee.

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Will any of the banks lose their pay vote? Earlier this year, Glass Lewis opposed the pay plan at Citigroup (C), which lost its say on pay vote in 2012 — a move that contributed to the resignation of CEO Vikram Pandit that year. However, at Citi’s annual meeting last month, only 15% of shareholders voted against the bank’s pay resolution. Last year, only 13% of shareholders voted against Goldman’s pay package. Morgan Stanley’s shareholders protested at similar levels, with 14% voting against. And at JPMorgan’s last annual meeting, in 2013, only 8% voted against the bank’s pay resolution. Judging by those figures, a vote against this year would seem to be unlikely, except that the pay rises under consideration at those meetings were in general lower than in the previous year.

It’s no easy task to determine how much bank CEOs get paid, or when, or what for, but proxy disclosures and our analysis indicate that CEOs at Morgan Stanley, Goldman, and JPMorgan received substantial increases last year, despite a pretty rocky year for stock price growth. And there were storms of protest when JPMorgan’s Jamie Dimon’s massive pay rise was reported, in particular.

Glass Lewis typically hands out failing grades where its analysis indicates that executives are paid too much for poor performances. It arrives at a grade using a two-pronged analysis: a quantitative pay for performance analysis and a qualitative assessment. The quantitative model looks at one-, two-, and three-year weighted averages for total stockholder return (TSR), earnings per share (EPS) growth, change in operating cash flow, return on assets (ROA), and return on equity (ROE), as well as three-year pay compared to a company’s peers.

Robert McCormick, Glass Lewis’ chief policy officer, said that even where a company had received a failing pay grade, the qualitative assessment allows him to determine whether a company was making improvements to its pay package, and, if it is, they would not recommend a vote against pay. In the case of the banks there was a wide amount of discretion afforded to the board to determine incentive payments, McCormick said. Even here, he added, if the figures had shown there was a good link to performance, the banks would not necessarily be penalized. Unfortunately, this pay-performance link was lacking at the banks, he added.

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In response to the Glass Lewis report, Morgan Stanley mounted a defense of its performance. In a filing with the SEC it argued that Glass Lewis had not excluded “accounting losses or gains attributed to changes in the value of its own debt,” so-called debt-value adjustments, or DVA. McCormick told me that this was not true, and that they had excluded the effects of DVA for all the banks, because it had a distorting effect.

Many commentators believe that excessive executive pay was one of the main contributors to the financial crisis, and with Wall Street pay on the rise again, shareholders, till smarting from massive losses seen in their investments in 2007 and 2008, may decide to vote against say on pay in order to bring banks to heel again.

Activist pension funds that might have been expected to vote against excessive pay plans have yet to decide on the bank votes. CalPERS said that the votes were under review and would likely not be decided before the final deadline for each bank. Florida’s State Board of Administration has also not made a final determination. (Florida recently voted against Coca-Cola’s controversial stock-compensation program.)

Clearly, careful consideration is being given to these recommendations, but it is leading to a nail-biting finish.


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