The people familiar with the matter have spoken once more, which can only mean one thing: another Wall Street chief is headed for the executioners block. The Wall Street Journal’s Kate Kelly is reporting that Jimmy Cayne has started notifying to board Bear Stearns that he plans to give up the CEO desk while remaining chairman. Alan Schwartz is expected take over.
More tomorrow morning.
Bear CEO Expected to Step Down But Remain in Chairman Post [Wall Street Journal]
CEO
developing…
And we’re back to Thain already.
Not that there was any doubt but it’s now official. Here’s the Merrill Lynch press release announcing that Thain takes the helm on December 1st.
“Merrill Lynch & Co., Inc. (NYSE: MER) today announced that John A. Thain, chief executive officer, director and member of Management Committee of NYSE Euronext, Inc. and former president and chief operating officer of Goldman Sachs Group, has been appointed chairman and chief executive officer of Merrill Lynch, effective December 1,” Merrill said in a statement.
Full Press Release after the jump.
CEOs of the world, unite! Forget that CEOs make 364 times more than the average worker (not including perks and benefits) – the average PE and hedge fund manager makes 61 times that of the average CEO.
Side rant regarding sub-workers: The study, conducted by the Institute for Policy Studies and United for a Fair Economy (IPS / UFE), factors in part-time jobs to the average worker salary. If you take the average for a full-time non-managerial job (40k), CEO pay is a mere 270 times the average worker. It’s good to know a fairer society is only a few theoretical adjustments away.
Don’t get your guillotine mobs in a bunch though, CEOs have toned it down, from the lavish 525 times the average worker salary they made in 2000 (that was the record). Forget the fact that in 1989 CEOs made only 71 times the salary of the average worker (Reagan just paved the way for that socialist Bush). Seriously, forget it. Sleep tight knowing that people who make $40k are only imaginary, like the borough of Brooklyn, or the strange creatures adorning the cover of Barbara Ehrenreich’s diary (those aren’t unicorns).
The real story is that CEOs are being forced into exploitative contracts, lulled by the false consciousness of 5 and 44. Sure, the common worker can get coerced into an oppressive labor agreement because he needs a common wage to survive, but CEOs need a robust portfolio of high-yielding alternative investments to survive as well, at the country club. CEOs have never felt as inadequate as members of the Second Estate, partly because PE/Hedge fund managers have several more estates.
CEO pay: 364 times more than workers [CNN Money]
Richard Fairbanks, the CEO, chairman, co-founder, and starting center of Capital One likens his business to a hockey game, because bad baseball metaphors are played out in his opinion. Fairbanks lives and breathes hockey. He co-owns the Washington Capitals, is a member of a full-contact rec team, coaches youth teams and drives a Zamboni to work. He lives by what he calls the Gretzky Concept, which is “go where the puck is going instead of where it is.” Unfortunately, Gretzky’s head is bleeding profusely, through a culmination of industry factors and a hat trick of bad decisions made by Fairbanks.
Fairbanks’ first goal in this hat trick was grabbing Southern consumer bank Hibernia for $4.9bn right before Katrina. The second was acquiring Northeastern commercial bank North Fork for $14.6bn right before the subprime fallout. What really got the hats on the ice was Fairbanks’ belief that he could integrate two major regional bank acquisitions in such a short period of time and face-off against established retail banking giants while battling a flat yield curve. Most North Fork branches have not been rebranded and still are not in Capital One’s central computer system. Apparently Fairbanks reads from the same bad expansion/integration playbook as retail banking giant JPMorgan, and makes equally awkward two line passes.
Last month, Fairbanks tried to mix up his lines, announcing Capital One’s first major cost cutting effort after two and half years of the company’s stock price being stuck in the neutral zone trap. The trap held.
Now, Capital One is trying to find its mojo by playing the management shuffle game, taking execs from Wachovia and Bank of America to replace the head of North Fork and commercial banking. Fairbanks commented, “We really are in the early third period of a three period game when it comes to completing my banking master plan…ok, fine, the seventh inning. We’re in the freaking seventh inning.”
Chief of Capital One Applies Hockey Strategies to Banking [New York Times]
Qwest said this morning that chief exeuctive and board chairman Richard Notebaert plans to step down as soon as a successor is found.
Eddie Lampert may be betting that former US Treasury Secretary Robert Rubin is poised to take over as chief of Citigroup, according to a former colleague of both Lampert and Rubin. Earlier this week, Lampert’s ESL Investments disclosed that it had accumulated a 0.3% stake in Citi, setting off speculation about Lampert’s intentions. Speculation ranged from notion that Lampert might view Citigroup as cheap relative to it’s banking peers—this came from an unnamed banker who happens to work at Citigroup—to the idea that he might be poised to take an “activist investor” stance and agitate for change. Shares of Citigroup role 4% following the disclosure of ESL’s position.
“Lampert is tight with Rubin. He loves the man. Idolizes him. He may think that Rubin’s about to become a lot more involved at Citigroup, maybe even to take over for Prince,” the source said, referring to Citigroup chief executive Chuck Prince.
Rubin rose to Wall Street at Goldman Sachs before being appointed to the Treasury position by Bill Clinton. He is now the chairman of Citigroup’s executive committee. Early in his career Lampert worked under Rubin when he was an arbitrage trader at Goldman Sachs. This morning’s Wall Street Journal described Rubin as one of Lampert’s “leading role models.”
Yesterday CNBC’s Charlie Gasparino said that there was pressure for Rubin to take a more active role in the management of Citigroup. His position at the head of the executive committee brings him a hefty paycheck—reportedly $17 million—but some have said he doesn’t exercise much responsibility for the management of the bank. At least one banker employed at an investment bank described Rubin as “a relationship guy” whose job mainly involved using the connections he has made during his long career in finance and government to win business for the bank.
Prince’s tenure at the top of Citigroup has not been a happy one. The bank has been under-pressure from investors to change its management and some have even suggested that it spin off some of its constituent businesses. Prince is widely seen as unwilling to fundamentally change the structure of Citigroup.
Will Chorus Grow at Citi? [Wall Street Journal]
Sunday was a banner day for executive compensation. Make that a banner headline day. The business section of the Sunday New York Times was largely devoted to articles decryingreporting on executive compensation, including reporter Eric Dash’s long, splashy article on executive exit compensation. Now they’ve assembled an online version of the special section with over two dozen pieces on executive comp.
So what’s inspired all this? Well, for that we turn to a Wall Street Journal editorial from a few weeks ago which explained that the SEC’s new disclosure rules for compensation have brought us far more information, inviting exactly this kind of media attention. Unfortunately, the rules produce information which is somewhat misleading, a fact that the New York Times notes, although it doesn’t let this get in the way of reporting the scandal that executives get paid a lot! The most important thing the Journal editorial notes is that the new disclosure rules are particularly bad at revealing whether executive’s are getting paid for performance.
Proxy season is under way, and as companies file their annual reports we can expect a spate of “analysis” stories purporting to tell us just how much America’s top executives are making. These stories will also purport to demonstrate that there is no pay for performance at the top of publicly traded companies by comparing stock appreciation with the pay as disclosed under a new SEC rule.
These stories will be wrong. This is so for the simple reason that the SEC’s new standard is not designed to measure pay-for-performance.
Caveats aside, the niftiest function of the special section tries to address the very question that the Journal warns us about: executive pay for performance. Interestingly, however, it seems to undermine the hypothesis that executive pay is a scandal. It’s an interactive graphic that allows readers to compare company performance to executive pay along a couple of different axes. What’s clear from the graph is that, for the most part, improvements in executive pay seem pretty well correlated with company performance. (But keep in mind that measuring CEO performance over just one year is not necessarily fair or reflective of shareholder interests). Go ahead and play yourself!
Executive Pay [New York Times Special Section]
Earlier today we mentioned Graef Crystal’s column speculating about why the pay packages of Wall Street’s chief executives were so similar despite notable differences in the size of the institutions they manage. Crystal’s question is fair, especially since CEO pay largely tracks that of the firms they manage. Why should this pattern break down on Wall Street?
Crystal posits a couple of image—the smoky backroom, the circled wagons—none of which are very flattering to our leading financial institutions. His idea is that there is safety in numbers—if they all pay around the same thing to the top guys, who’s going to complain?
That’s not such a bad answer, really. And may well explain some of the psychology of the compensation committees. But it is, of course, just speculation. And it’s not clear that this is the only explanation available, or the most obvious.
In fact, if you understand why CEO pay is positively correlated with firm size you can quickly grasp why this doesn’t work out so well on Wall Street. In the broader corporate America, CEOs of larger companies are paid more not because there is some metaphysical connection between the size of a company and the size of a paycheck but because the biggest companies are in fierce competition to attract the top talent. Whether or not CEOs really are what make or break companies, the boards of directors of American companies believe this is true and are willing to pay up for this belief.
Which brings us to Wall Street, where the competition is fierce to hire top CEOs across the range of firm sizes and faith in the leadership principle is stronger than ever. Bear Stearns might be playing catch-up with the larger Lehman Brothers but the two banks are still competitors. Just because Bear Stearns is smaller doesn’t mean it can afford to hire a second-rate CEO on the cheap. The size-comp relationship breaks down on Wall Street, in other words, because the little guys need to constantly worry that the big guys will poach their executives.
There are big fish on Wall Street, and there are bigger fish. But they’re all swimming in the same pond, and to catch them you’ve got to use the same bait. And around here we have a word for the special bait used: it’s called “money.”
Earlier:
What Are They Smoking? The Wall Street Executive Pay Problem [DealBreaker.com]
The pay packages for Wall Street’s highest executives is coming under a new sort of scrutiny. This time what seems to have attracted attention is not so much the huge amounts of money the chief executives received by chief executives of investments banks—but the strange similarity in the pay packages. We noticed this a couple of days ago when Bloomberg’s otherwise measured reporting on the compensation of Bear Stearns chief executive James Cayne—who was reportedly paid $40 million for last year—was interrupted by a not-so-subtle implication that there was something odd about the fact that so many of the guys running Wall Street’s banking firms took in similarly sized pay packages despite the variety in the size of the firms. Why does the head of Bear Stearns get paid as much as the head of, say, Lehman Brothers?
Today Bloomberg columnist Graef Crystal drops the “subtle” and “implication” part and comes right out and says that he thinks there is something fishy going on. “Is Goldman, Lehman Pay Set in Smoke-Filled Room?” his column asks.
So why, when there is so much disparity in sales and net Income, is there so little difference in pay?
Is it just coincidence? Possibly. Although total pay packages have become more and more similar, there is still some healthy variation in different forms of pay, such as base salaries and annual bonuses, as well as free stock and option awards.
I have an alternative theory that takes its page from the Old West: circle the wagons. If you’re going to pay more than any other industry and by a substantial margin, it helps if you can justify your compensation by holding up the numbers of your industry peers.
So is it a smoke-filled room? Circled wagons? Is the fix in? Or is there perhaps less than meets the eye? More on this later today. It’s way too early in the morning to start talking about wage curves and positive correlations.
Is Goldman, Lehman Pay Set in Smoke-Filled Room? [Bloomberg]
- Use the Bloomberg command
NH BLG_DEALBREAKER <GO>
to access Dealbreaker
