by Will Ashworth | June 8, 2012 10:00 am
It won’t surprise many people that the CEOs of America’s banks and other financial companies are still going to be able to afford their Brioni suits and Patek Philippe watches. After all, Bloomberg’s list of the top 50 paid CEOs on Wall Street suggests they received a 20% pay hike in 2011.
That’s good news for them, but bad news for shareholders. Many of these firms saw revenues, earnings and stock prices tumble last year — and yet their CEOs received more at the trough. In the spirit of celebration, here’s a look at some of the biggest abusers.
The worst performing stock of the top 50 in 2011 was Bank of America (NYSE:BAC), down 58.1%. CEO Brian Moynihan earned a total of $8.1 million in 2011, 317% higher than the year before. Of course, Moynihan didn’t actually receive all $8.1 million. Much of it, approximately 75%, was for 413,809 performance-contingent restricted stock units. To obtain those PRSUs over the next four years, Bank of America will have to achieve a return on assets of at least 0.05%, which it did in 2011. As a result, Moynihan received 206,905 shares that will vest in the future.
Unless the bank takes a step backward, it appears likely Moynihan has at least $2 million to collect at some point down the road — and that’s just from his 2011 PRSUs. There are also additional awards from previous years. A total of 47,597 shares vested in 2011 worth an estimated $703,000. So, to be fair to Moynihan, he really only earned $2.7 million. Furthermore, the grant date for the PRSUs was February 15, 2011, when BAC shares were double where they are today.
Excessive pay is a major faux pas in my opinion, but this isn’t even the best example — despite BofA’s stock tanking last year.
The worst offenders on Wall Street are Henry Kravis and George Roberts of KKR (NYSE:KKR), who earned a combined $59.9 million in 2011, a 49% increase from 2010. Interestingly, with the exception of their cash salaries and some expenses like a car and driver, 98% of their compensation came from carried interest, a term Mitt Romney is more than familiar with.
Thanks to the presidential race, we’ve all been given a lesson on the inner workings of private equity and how wealthy individuals are able to pay tax at a 15% rate instead of 35% — all because of a tax rule that was written in 1954 when private equity didn’t exist. Right wing, left wing, no wing — carried interest is nothing more than a fee dressed up as a capital gain.
Kravis and Roberts hold KKR Group partnership units worth $5.4 billion. It’s inconceivable how the government can let this continue. You can argue all you want that carried interest isn’t income, but in my opinion you’d be wrong. In the meantime, George and Henry avoid paying $12 million in taxes.
And you wonder why there’s an economic crisis in this country. Despite the largesse bestowed on these two billionaires, KKR stock managed to deliver a return of negative 5.4% in 2011. I would hate to see how much they would have made if the stock went up 5%.
Next on my list is Lloyd Blankfein, who made $16.2 million as CEO of Goldman Sachs (NYSE:GS) in 2011, a 14% increase from the year before. While it might not seem like an excessively large increase for a CEO weened on lavish compensation, it is for several reasons. First, since Blankfein entered the C-Suite in January 2004 as CEO, Goldman’s stock has achieved a cumulative total return of 5.8% compared to 19.2% for the S&P 500, outperforming the index in just four of those years. In that time Blankfein earned more than $205 million in total compensation.
Some might argue that despite Goldman’s poor performance, other companies in the capital markets industry did worse, and therefore, on a relative basis, he actually did OK. Well, if that’s how you want to judge the CEOs of your investments, go right ahead. In my opinion, if you can’t beat the index over an eight-year period, shareholders are getting hosed.
Lastly, I couldn’t write an article about CEO compensation on Wall Street without the star himself: Jamie Dimon. Despite a $2 billion-plus trading “error” that began to take shape in 2011, the JPMorgan Chase (NYSE:JPM) leader earned $23.1 million in 2011, while its stock dropped 20%. Hardly money well spent.
There used to be a certain golfer on the PGA Tour who had the acronym FIGJAM associated with his name because of his impressive self-confidence. Dimon is the banking equivalent. You don’t belittle the compensation of people making less than 1% of your pay packet, even in jest. Since Dimon took over as CEO at the beginning of 2006, he’s earned $138 million in total compensation while JPM stock has flatlined. It seems like an awful waste for a bunch of paper pushers.
As of this writing, Will Ashworth did not own a position in any of the stocks named here.
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