Fourth-Highest-Paid Bank CEO Made Negative Ten Million Dollars in 2011

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Here is a fun thing we can do, which is put arbitrary numbers in a list and see how they look. Shall we? We shall.

First, here is how much various bank CEOs and assorted other miscreants made in 2011, if you don't worry too much about what "made" and "in 2011" mean*:

This list is, of course, inspired by this exercise by Bloomberg, ranking the top 50 highest paid financial institution CEOs. But if you're Lloyd Blankfein or, I mean, really, Henry Kravis, you are probably not planning your retirement around your paycheck. Instead you could to some approximation view your job running your financial institution as keeping an eye on the people responsible for your private wealth, in the form of your share ownership in that institution, and Lloyd's $16mm 2011 paycheck hardly makes up for the $155mm of lost value on his GS shares.

In theory, this is a good thing, sort of: CEOs ought to have their interests aligned with shareholders', and how better to do that than by having them be shareholders - and have their interest as shareholders vastly outweigh their interest in having their board cronies grant them a big pay package? In fact, Bloomberg ranks Vikram Pandit as ugliest girl in the whole wide room (based on dollars paid per percentage point of 3-year shareholder return), and it's noticeable that he (along with Gorman and Moynihan) had a horrible 2011 but nonetheless was in the black personally. Jamie Dimon was perhaps motivated to better performance - or at least, to concealing any whaling excursions through year-end - by his personal stake in the firm. I can't explain Lloyd but we can at least surmise that he's really sorry about the stock price, no?

But that story isn't especially compelling, at least not on those numbers: Lloyd lost nine digits of personal wealth in 2011, while GS's stock price performance more or less matched those of Citi and MS, which are run by managers who have an order of magnitude less ownership interest. And here's CEO stock holdings (shares as of today x price as of 1/3/2011) versus shareholder return in 2011 for Bloomberg's larger sample of CEOs**:

There couldn't be less relationship, no?

Felix Salmon wrote yesterday about how financial services employees are fired so easily because, unlike normal employees, they operate in a market that is cleared by prices and when their price exceeds their value there are no buyers. This leads to precision of some sort:

[A]t Goldman, the value of any given employee is far more quantifiable than it is at most other [i.e. non-financial] firms. The employees know it, which is one reason they get paid so much. And the firm knows it, too. That’s why banks have variable compensation: if you were worth $2 million last year and $1 million this year, your pay will go down this year.

This is basically true, as is a related but converse relationship: financial services employees are pretty motivated by money, which is why they get so much of it, and the more money you spend the smarter and more diligent employees you often get. But somewhere between the Goldman MDs who weren't bringing in enough revenue to keep their deks, and the bank CEOs whose performance is totally uncorrelated with their financial incentives, that relationship breaks down. Giving Lloyd Blankfein half a billion dollars in Goldman stock isn't enough to prevent him from lopping 40% off the value of that stock.

What does that tell you? That this is a dumb exercise based on one year of data with many confounding factors? Sure! But it also suggests, at least weakly, that criticisms of banks being "too big to manage" have something to them. If the most and least incentivized managers end up in the same place, then it's not clear what their management is worth. Fortunately for them, though, the market price - call it around a $15mm median for running a big bank? - is a bit clearer.

Wall Street CEO Pay Rises 20% With KKR’s Kravis No. 1 [Bloomberg BW]

* Things to ponder: share holdings are from Bloomberg PHDC3 as of today. I know, totally wrong, go find historical figures yourself! Stock price and dividends are from 12/31/2010 to 1/3/2012, from Bloomberg. 2011 pay is from this calculation by Bloomberg, which uses comp data that includes delivery of prior-year awards.

** Data from Bloomberg. I omitted the PE guys (Kravis, Roberts, Schwarzman) because of the fund vs. management company difficulty. Also I truncated shareholdings at $250mm because otherwise it looks even more godawful.

Related

Vikram Pandit Is Committed To Getting Paid

If you didn't know Chief Executive Officer Vikram Pandit, you might think he enjoyed not being compensated for the work he does at Citigroup because for quite some time, he wasn't. And although the "I will only get paid $1/year until Citi turns a profit" exercise was fun for a while, he was pretty happy when the old jalopy started making money again, in part because it meant he could receive a paycheck. Then last April, his shareholders rejected the bank's executive pay plan, claiming the Big C "lets Chief Executive Officer Vikram Pandit collect millions of dollars in rewards too easily." And while it's possible that Citi shareholders are just a bunch of pricks who chose to overlook the fact that Uncle Vikula didn't collect squat for several years and once had an entire article written about the fact that lieutenants attributed a "new bounce in his step" to him daydreaming "the day when he is going to earn more than a $1 a year,” maybe they just assume that he doesn't care about getting paid either way? Anyway, here's Vickles, reminding anyone who forgot about the sacrifices he made and setting the record straight: “The board has this process with them, they’re going through it, and they are committed, as I am, to making sure that they resolve this,” Pandit said. “I want to get paid what the board thinks is right for me, for the job that I’ve done and for the incentives that they think I ought to have.” Pandit told lawmakers in 2009 that he would take a $1 annual salary until he restored the bank to profitability. Citigroup made a $21.7 billion profit for 2011 and 2010 combined, compared with a $29.3 billion loss for the two preceding years. “When the company was losing money, I stepped up and said I’ll take a dollar a year and I did, exactly for that reason, exactly the right thing to do,” Pandit said. For those having trouble separating the nice guy/don't want to offend anyone statement from what he's actually trying to say, a rough translation of the above would be: get me paid, bitch! Citigroup Will Resolve CEO Pay By End Of Year, Pandit Says [Bloomberg]