Practice encourages leaders of management firms to take a longer-term perspective
More CEOs at large money managers or banks with large asset management units received total compensation increases in 2017 compared with the previous year, and most increases came via stock awards — a practice that sources said would continue as managers tie chief executive pay to long-term performance.
A Pensions & Investments analysis of proxy filings found that seven of the nine firms that filed shareholder proxy reports as of April 13 increased overall compensation for their CEOs in 2017. In 2016, CEOs at eight of 11 firms reviewed by P&Ireceived a cut in total compensation.
Firms that increased CEO compensation cited improved earnings, assets under management and net revenue as reasons for the 2017 pay hikes, according to the proxies.
Stock awards for money management CEOs in 2017 either remained the same as in 2016 or increased for all but three of the firms reviewed. William J. Stromberg, CEO of Baltimore-based T. Rowe Price Group Inc., received the biggest increase in stock awards, 97%, to $3.55 million. Mr. Stromberg’s total compensation was $11.67 million, up 28.5% from 2016, also the biggest increase among the firms.
Laurence D. Fink, chairman and CEO of BlackRock (BLK) Inc. (BLK), New York, received total compensation of $27.95 million in 2017, up 9.6% from the previous year. His stock award of $12.45 million was unchanged from 2016.
2017 CEO compensation for publicly traded money managers
|Ranked by total compensation, in millions.|
|Jamie Dimon||J.P. Morgan Chase||$28.3||3.4%|
|Laurence D. Fink||BlackRock (BLK)||$28.0||9.6%|
|James P. Gorman||Morgan Stanley (MS)||$24.5||15.6%|
|Lloyd C. Blankfein||Goldman Sachs||$22.0||8.9%|
|Gerald L. Hassell||Bank of New York Mellon (BK)||$19.1||-0.4%|
|Martin Flanagan||Invesco (IVZ)||$13.8||2.5%|
|Frederick H. Waddell||Northern Trust||$11.9||6.1%|
|William J. Stromberg||T. Rowe Price||$11.7||28.5%|
|Gregory E. Johnson||Franklin Resources||$9.9||-18.3%|
|Source: Company reports|
Gregory E. Johnson, chairman and CEO of Franklin Resources Inc., San Mateo, Calif., had the largest decrease in stock awards, down 28% to $5.715 million. Mr. Johnson’s overall compensation for the firm’s fiscal year, ended Sept. 30, was reduced 18.3% to $9.88 million. (The firm, which managed $753.8 billion as of year-end 2017, saw $38.6 billion in net outflows, according to the company’s proxy statement.) Mr. Johnson’s most recent cut was on top of a 19.8% compensation decrease in 2016.
“One place we’ve seen CEO compensation shift is from short term to long term, from annual cash bonuses to equity ownership, options — compensation where the payoff is down the road,” said Keith Robinson, Barrington, Ill.-based managing partner at Focus Consulting Group LLC, a consultant to money management firms on executive compensation. “With margin compression resonating in the industry, fee reduction, all that has a long-term effect on the business. CEOs need to address this, so their pay is being aligned with the long-term needs of their firms.”
Added Andrew McCollum, managing director, investment management, at financial services consultant Greenwich Associates LLC, Stamford, Conn.: “I do think in the future you’ll see some firms be very successful and some not. There will definitely be winners and losers. So firms want to pay their CEOs to drive long-term success. That will mean changes in how they manage and how their success is measured.”
Frederick H. Waddell, who was Northern Trust Corp.’s chairman and CEO in 2017, had compensation that totaled $11.85 million, up 6.1% from the previous year, although his stock awards, at $4.86 million, were down 10%. Mr. Waddell retired as CEO at the end of 2017, and Michael G. O’Grady, who is president of the Chicago-based firm, added the CEO title at the start of this year.
Bank of New York Mellon (BK) Corp. (BK) also saw a change in command last year. Chairman and CEO Gerald L. Hassell, who retired on Dec. 31, received total 2017 compensation of $19.081 million, down 0.4%, and stock awards were down 1% to $13.518 million.
Charles W. Scharf, who was appointed as Mr. Hassell’s replacement at the New York-based firm on July 17, received a combined $17.101 million in compensation in 2017, including $14.72 million from stock awards.
Along with a greater focus on long-term performance, Mr. McCollum said money manager CEOs now must concern themselves with ongoing competition and a changing industry.
“On one side of the coin, the industry is becoming more competitive and mature,” Mr. McCollum said. “There’s asset outflows, lower margins. Anyone in the industry whose compensation is tied to performance would see their compensation go down. But the other side of the coin is that, because the industry is in such a mature state, it’s become much more complex to manage these firms. It used to be all performance. Now they have to think about marketing, technology, compliance challenges. Even culture — an asset manager’s culture ties to a lot of this, but it also ties to retention of talent and, therefore, to performance. This is now business management. That means the CEO has to be different.”
The move toward passive management in the industry also plays a role in changing how CEO performance is assessed, Focus Consulting’s Mr. Robinson said. “For active managers, the dilemma becomes, what does a manager do to compete? So they reward CEOs for innovation from artificial intelligence, reward them for innovation on fees. The CEOs who are smart are those who have ideas on how to get this innovation.”
Despite the move to long-term performance compensation, Mr. Robinson said that most manager CEO compensation structures generally have remained relatively subjective.
“It’s still the usual suspects — share price change, asset flows, change in (earnings before interest, taxes, depreciation and amortization). It’s still more short-term-oriented. I think firms are now getting out from that and being more long-term-oriented, with equity.”
This article was published on Pensions & Investments (pionline.com).
BY RICK BAERT ·