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.