BlackRock Inc. Chief Executive Officer Larry Fink told investors on a conference call in January last year that the world’s biggest money manager was “very well positioned” for 2010. At the end of the year, the market sent a different message: New York-based BlackRock’s total share return was negative 16 percent, while the Standard and Poor’s 500 Asset Management and Custody Bank Index rose 13 percent.
BlackRock’s disappointing stock performance followed its best year since 2000, with total return soaring 77 percent in 2009.
Even as Fink, 58, struggled to deliver shareholder value, he received $23.8 million in salary and stock. That made him No. 1 in the Finance 50, Bloomberg Markets magazine’s annual ranking of the best-paid CEOs at the largest U.S.-based financial companies by market capitalization. The ranking appears in the July issue of Bloomberg Markets.
Prudential Financial Inc.’s John Strangfeld is No. 2 in the ranking, with total pay of $22.6 million, according to data compiled by Bloomberg. Insurer AON Corp.’s Gregory Case is No. 3, at $20.8 million.
Fink got a 50 percent raise over his 2009 compensation. And he wasn’t the only top financial executive to see a big jump in his pay. Average compensation for Finance 50 CEOs who held the same job in 2009 rose 26 percent to $11.5 million in 2010 after falling for two years.
Average compensation was down 21 percent to $9 million in 2009 and 19 percent to $11.4 million in 2008, according to data compiled by Bloomberg.
The big pay raise marks an end to a period when financial executives and their boards retreated in the face of withering criticism from Congress, shareholders and the media, says Tim White of Kaye/Bassman International Corp., a Dallas-based executive search firm.
“Most shareholders and most taxpayers have short me-mories,” White says. “The public perception of executive compensation is different today than it was two or three years ago, simply because the investing climate has changed and we’re not in a world of panic or bailouts anymore.”
Two bank executives saw their pay rise more than 10-fold. The board of directors of JPMorgan Chase & Co. paid CEO Jamie Dimon $20.8 million, an increase of 1,474.5 percent over 2009. His salary, bonus and other compensation add up to $6.6 million; the rest is restricted stock and stock options.
Goldman Bonus Back
Goldman Sachs Group Inc.’s board paid CEO Lloyd Blankfein $14.1 million, an increase of 1,276 percent from 2009. The package included $7.7 million in restricted stock and a cash bonus of $5.4 million, ending two years in which the firm’s top executives gave up their bonuses.
JPMorgan investors earned a total return for 2010 of 2.3 percent; Goldman Sachs investors, 0.5 percent.
“Look at Goldman Sachs,” says Donald Selkin, New York-based chief market strategist at National Securities Corp., which manages $3 billion and invests in financial stocks. “The stock has struggled while management has enriched itself. We really need a better connection between stock price and pay.”
The ranking includes CEOs who held their jobs for at least 10 months in 2010 and is based on compensation data reported to the U.S. Securities and Exchange Commission in the firms’ annual proxy statements. Those numbers sometimes match, and sometimes differ sharply from, statements from the banks, brokerages and insurance companies concerning the compensation they intended to give their top executives for the work they did in 2010.
Two Ways of Counting
In the case of BlackRock’s Fink, for example, the two sets of pay numbers are virtually the same -- $23.8 million in the SEC data versus $23.7 elsewhere in the proxy.
In the case of Blankfein, the figures provided to the SEC say he received $14.1 million, while in a separate statement, the bank said it was awarding him $19 million for the work he did in 2010, with some of it not delivered to him until the early months of 2011.
The difference is still more stark in the case of Bank of America Corp. CEO Brian T. Moynihan; his SEC-reported pay in 2010 was $1.9 million, while in a separate statement, BofA said it was awarding him $9.1 million in restricted stock for his 2010 performance.
The big pay hikes for bank and asset management CEOs were handed out amid flat or sinking 2010 share prices. Fink, Blankfein, Dimon, Moynihan and Morgan Stanley CEO James Gorman all made Bloomberg Markets’ list of financial executives who provided the least shareholder value in 2010.
According to Bloomberg data, Morgan Stanley investors earned a total return of negative 7.4 percent for the year; Bank of America investors, negative 11.2 percent.
“Who do you blame, the chief executive officer or the compensation committee at the board level?” asks Hugh Johnson, who oversees $1.9 billion as chairman of Albany, New York-based Hugh Johnson Advisors LLC. “The important thing to me as an investor is whether the CEO delivered the financial results, and boards need to have more backbone when it comes to punishing lack of results. We’ve tried to get rid of company cronyism through regulatory reform, and we’ve had some success. But we aren’t there yet.”
Both Bank of America’s Moynihan and Morgan Stanley’s Gorman saw their companies’ stock prices plummet in their first years as CEO. BofA posted a $2.2 billion net loss in 2010 as the bank took $12.4 billion in impairments on mortgage and credit card operations. The bank said in a filing that the CEO and other executives’ pay was based on “recognition of 2010 as a unique and critical transition year for the company.”
$20 Million Club
Insurance companies were an exception to the stock swoon. Four insurance firms made the Finance 50’s top six; they had total stock returns ranging from 14.8 percent for Travelers Cos. to 24.6 percent for Chubb Corp. All four CEOs are members of the $20 million club.
“There isn’t the political turmoil surrounding CEO compensation in the insurance industry,” says Richard Lipstein, managing director at Boyden Global Executive Search. “You’ll always need insurance, and there’s still a lot of pricing power in the industry.”
Total net income for U.S. private property and casualty insurers rose to $34.7 billion last year, up from $28.7 billion in 2009, according to ISO, a Jersey City, New Jersey-based insurance research firm, and the Property Casualty Insurers Association of America.
Fink BGI Purchase
Fink’s BlackRock manages $3.65 trillion, including distressed assets owned by the Federal Reserve. Jason Weyeneth, a New York-based analyst at Sterne Agee & Leach Inc., blames last year’s poor stock performance on the fact that investors expected BlackRock’s purchase of Barclays Global Investors, which it bought from Barclays Plc in 2009 for $12.5 billion, to contribute more to earnings.
By buying BGI, BlackRock took ownership of the iShares exchange-traded funds.
“I think most people would consider Fink as one of the brightest and best managers within the asset management space,” says Weyeneth, who has a “buy” rating on BlackRock shares.
In a statement, a BlackRock spokesman said, “Mr. Fink’s 2010 compensation reflected a wide range of factors, including BlackRock’s record financial performance last year -- with revenues up 83 percent, earnings up 54 percent, dividends up 38 percent and strong asset growth and investment results across our newly expanded business.”
BlackRock reported first-quarter profit of $568 million, a 34 percent increase from the year earlier, as assets under management rose 2.5 percent from the previous quarter. The stock is up 1.3 percent this year as of the close of market yesterday.
Pandit’s Dollar Deal
The financial executive providing the most shareholder value for his pay in 2010 was Citigroup Inc. CEO Vikram Pandit, who took just $1 in salary and no bonus or stock options, while Citigroup’s total stock return soared 43 percent.
Pandit told Congress in February 2009 that he would take a $1 salary until the bank became profitable again. That happened last year, as the bank logged a $10.6 billion profit after losing a total of $29.3 billion in 2008 and 2009.
In January, the board awarded Pandit a $1.75 million cash salary for 2011. In May, it granted him a retention award that included $10 million in deferred stock, stock options valued at $6.5 million and a profit-sharing payment that could reach $26 million if the company meets analysts’ expectations.
Buffett a Good Value
The executive ranking No. 2 in best shareholder value is Warren Buffett, CEO and chairman of Berkshire Hathaway Inc., who, as is his custom, took no bonus or stock options and just $100,000 in Berkshire salary. Berkshire’s stock returned 21 percent.
Buffett’s total pay was $525,000, including personal and home security services and a director’s fee from Washington Post Co. His personal stake in Berkshire’s A and B shares added up to more than $45 billion as of the close of trading yesterday.
The Dodd-Frank financial regulatory overhaul enacted in July 2010 requires the SEC and the Federal Deposit Insurance Corp. to write new compensation rules for financial companies. Among the measures being proposed is one that would require at least 50 percent of incentive-based pay to be deferred for three years or more. The prospect of restrictive new regulations on financial company operations is helping to keep their stock prices down, Kaye/Bassman’s White says.
“There’s a lot of uncertainty with relation to taxes and what the regulatory landscape is going to look like going forward,” he says.
Paying Back TARP
Of the 50 companies in the ranking, 24 received money from the government’s Troubled Asset Relief Program. Of those, three have failed to pay it back. One of those was Buffalo, New York-based M&T Bank Corp.
M&T CEO Robert G. Wilmers, No. 47 in the Finance 50 ranking and No. 3 in the best-shareholder-value list, took a 16 percent pay cut in 2010 while his company’s stock gained 35 percent.
The big pay boosts in the wake of poor stock performance given to men like Blankfein and Moynihan garner more notice.
“They’re held to a different standard,” White says. “They have to wear the hats of a global financial steward, and as a consequence of that, the lower they keep their compensation profile, the better.”
-- With assistance from Laurie Meisler and Donal Griffin in New York. Editors: Michael Serrill, Vince Bielski.