Jefferies Group Inc. (JEF)’s plan to pay two executives $78 million of incentive compensation could hurt the firm’s bondholders, Moody’s Investors Service said.
“While Jefferies has outperformed its peers, an excessive focus on short-term compensation has been at the root of many outsized trading, credit and litigation losses at investment banks,” Moody’s said today in a report.
Jefferies said last week it would pay Chief Executive Officer Richard Handler $58 million in 2012 and future pay, according to a filing from the New York-based firm. Brian Friedman, 57, chairman of the firm’s executive committee, is set to receive $53.3 million in 2012 and future compensation. Those figures include $39 million for each executive in restricted stock awards for the next three years, which was the focus of the Moody’s report.
The relationship between short-term vesting periods for pay and outsized trading losses have led regulators to require investment bank boards to consider longer compensation terms, lower payouts and more clawbacks, Moody’s said in the report. Those guidelines have not been “substantially implemented” at Jefferies, the ratings firm wrote.
Handler’s $19 million compensation package for fiscal 2012 jumped 36 percent from a year earlier after Jefferies’s shares surged 48 percent during the 12 months ended Nov. 30. A “strong execution track record” by Handler and Friedman has benefited bondholders as the firm has avoided losses that have plagued larger competitors, Moody’s wrote.
Jefferies gained 2 cents, or 0.1 percent, to $19.97 at 11:44 a.m. in New York. The shares have climbed 7.5 percent this year.
Even though the awards are subject to three-year vesting, risks can take longer than that to appear, Moody’s said. Jefferies’s board may also be “insensitive” to the concerns of regulators regarding compensation levels, the ratings firm wrote. Jefferies’s pay plan for Handler is similar to an incentive program enacted in 2010, which granted annual payouts of restricted stock units at about $13 million for three years.
Jefferies’s compensation committee decided to pay Handler, 51, an $8.1 million bonus for 2012. He volunteered to lower that figure to $5 million, according to the filing. Friedman also offered for his bonus to be cut from $6.1 million to $3.75 million.
Richard Khaleel, a spokesman for Jefferies, declined to comment on the report.
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