March 3 (Bloomberg) -- Stephen Schwarzman, co-founder and chairman of Blackstone Group LP, took a 99 percent pay cut last year as the world’s largest buyout firm posted a $1.33 billion loss and its stock fell at almost twice the rate as the market.

The 62-year-old Schwarzman earned $350,000 in salary and opted not to take any other cash last year, the New York-based company said yesterday in a filing with the U.S. Securities and Exchange Commission. He was paid $180.1 million in 2007, on top of $684 million he received when the company went public in June of that year. President Tony James was paid $15.7 million in salary and bonus last year, a 73 percent drop.

Blackstone, which had a profit of $2.12 billion in 2007, marked down the value of its private-equity holdings by 20 percent in the fourth quarter and its real estate investments by 30 percent as the global recession eroded asset values. Schwarzman told investors last week that he’s “not anticipating a quick recovery” in the markets.

“It’s a we’re-all-in-this-together move to keep his investors happy,” said Elizabeth Nowicki, a professor at the Tulane University School of Law in New Orleans who studies mergers and acquisitions. “He’s saying, ‘It’s ugly, we’ve all got to tighten our belts.’”

Schwarzman’s co-founder, Peter G. Peterson, retired from the firm last year. He was paid $350,000, compared with $94 million in 2007, and didn’t take a bonus.

Blackstone’s stock dropped 70 percent last year, compared with the 38 percent decline by the Standard & Poor’s 500 Index. It closed yesterday at $4.77, down from $31 at its initial public offering.

Lewis, Blankfein

Wall Street chief executive officers who testified before Congress last month were asked to disclose their salaries and bonuses for 2008 and 2009 at the hearing. The highest-paid for the year was Bank of America Corp.’s Kenneth Lewis with a salary of $1.5 million, while the lowest was Goldman Sachs Group Inc.’s Lloyd Blankfein, at $600,000. None of the executives took a bonus for 2008 or will have a salary increase in 2009.

Private-equity firms pool investor money to buy companies, with the goal of improving performance and selling them several years later for a profit. They typically take 20 percent of investment gains and a fee of 2 percent of assets under management.

Investment profits have virtually evaporated as credit markets prevent private-equity firms from buying new companies or selling their existing holdings to other private buyers. Announced private-equity deals dropped more than 60 percent last year to $211 billion, according to data compiled by Bloomberg.

New Disclosure

“We ended 2008 and begin 2009 in one of the most challenging equity, credit and economic environments in the last century,” Schwarzman told investors on last week’s conference call to discuss fourth-quarter results.

By selling shares to the public almost two years ago, amid the biggest LBO boom in history, Schwarzman agreed to pull back the veil of secrecy that long guarded private-equity economics. That makes Blackstone one of the few buyout firms that must disclose how much it pays its executives.

Schwarzman, James and other top executives, who traded their interests in Blackstone’s partnership for shares at the IPO, have watched the value of their shares shrivel.

Stock Values

Blackstone said in the filing that the portion of Schwarzman’s shares that vested in 2008 were valued at $1.38 billion based on the IPO. Those shares are worth about $207 million based on yesterday’s closing price. James’s vested stock in 2008 was worth $243.1 million based on the IPO price, or $36.5 million at yesterday’s close.

President Barack Obama’s budget, detailed last week, includes a provision to tax carried interest, the private-equity managers’ portion of profits from a sale, as ordinary income. That change from treating carried interest as capital gains would boost the tax rate to as much as 39 percent from 15 percent.

The Obama administration estimated the change would boost the amount executives in partnerships including buyout funds and some hedge funds pay by an estimated $24 billion over nine years.

To contact the reporter on this story: Jason Kelly in New York at jkelly14@bloomberg.net

Last Updated: March 3, 2009 00:01 EST