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Money Management

CEO pay mixed in asset-challenged year

J.P. Morgan Chase CEO Jamie Dimon, left, and Morgan Stanley CEO James P. Gorman were among those seeing a bit more in their paychecks.

5 leaders see less in their checks, while another 6 get pay increases

CEOs of the country's largest asset managers, and megabanks with asset management divisions, are finding themselves in the hot seat over their high earnings relative to those of their employees.

The first wave of CEO pay ratio disclosures began last year, drawing scrutiny from Congress as the industry marked a decade since the 2008 financial crisis. Meanwhile, a Pensions & Investments analysis of proxy filings for 11 firms found that top executives received a mix bag as far as raises vs. pay cuts last year.

Overall, five CEOs saw their total compensation drop, while six received a bump in pay over 2017.

Among the proxy filings reviewed, the three executives bringing in the highest pay were Jamie Dimon, CEO of J.P. Morgan Chase & Co., Morgan Stanley (MS) CEO James P. Gorman, and BlackRock (BLK) Inc. (BLK) CEO Laurence D. Fink, who respectively received $30 million, $28.2 million and $26.5 million in total compensation last year.

While Mr. Fink's total compensation dropped 4.3%, Mr. Dimon's total compensation increased by 6% over the previous year and Mr. Gorman's jumped 14.9%, according to data the firms reported using the Securities and Exchange Commission's preferred calculations.

For this story, P&I examined compensation reported pursuant to SEC rules, which includes changes in pension value and non-qualified deferred compensation. Data reported to the SEC also includes equity-based awards granted during 2018, but not awards granted this year for 2018 performance.

The two highest-paid executives, Messrs. Dimon and Gorman, were among seven CEOs who testified before the House Financial Services Committee on April 10 in a hearing meant to review the country's largest banks 10 years after the financial crisis.

Dimon leads CEOs in pay
Total 2018 compensation of publicly traded money manager and bank CEOs, in millions.
CEO Company2018 compensationChange
Jamie DimonJ.P. Morgan Chase$30.0 6.0%
James P. Gorman Morgan Stanley (MS)$28.2 14.9%
Laurence D. Fink BlackRock (BLK)$26.5 -4.3%
David M. SolomonGoldman Sachs$20.7 26.2%
Timothy J. Sloan Wells Fargo $18.4 4.9%
Joseph L. HooleyState Street $16.1 -17.3%
William J. StrombergT. Rowe Price$13.1 12.1%
Martin L. Flanagan Invesco (IVZ) $12.9 -6.4%
Gregory E. JohnsonFranklin Resources$9.5 -4.4%
Charles W. Scharf Bank of New York Mellon (BK)$9.4 -45.1%
Michael O'GradyNorthern Trust$8.0 49.8%
Source: Company reports

CEOs grilled

During the hearing, Rep. Maxine Waters, D-Calif., chairwoman of the committee, specifically grilled the CEOs on their pay relative to their median worker, which was provided under the CEO pay ratio disclosure rule, mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

"Since the crisis, the megabanks have collectively made over $780 billion in profits, or nearly five times the amount they paid in fines. And despite all of the compliance failures under their watch, no one has made out better than the CEOs — one made as much as $30 million a year, and another made 486 times the amount a median employee at their bank is paid," Ms. Waters said during the hearing, referencing the compensation of Mr. Dimon and Citigroup Inc. CEO Michael Corbat, who received $24.2 million in 2018.

J.P. Morgan's CEO pay ratio is 381:1, while the pay ratio for Morgan Stanley (MS)'s chief is 198:1.

The majority of Mr. Dimon's total compensation was in stock awards, valued at $23 million, up from $21.5 million the previous year, proxy filings show. The same was true of Mr. Gorman, whose total compensation consisted of $19.7 million in stock awards, up from $11.4 million in 2017. Mr. Fink's stock awards also increased over 2017, to $17 million up from $16.6 million.

BlackRock (BLK) noted that Mr. Fink's total compensation decreased, however, "due to BlackRock's financial performance relative to expectations and underperformance in alpha-generating products," the proxy statement said. While long-term performance was strong over the three-year and five-year periods, "there were 1-year performance pressures across the alpha-seeking investments platform."

Mr. Fink's total compensation, which puts BlackRock's CEO pay ratio at 195:1, decreased last year alongside four other CEOs of publicly traded firms.

Recently retired State Street Corp. (STT) CEO Joseph L. Hooley saw his total compensation drop 17.3% to $16.1 million in 2018; Invesco (IVZ) Ltd. CEO Martin L. Flanagan took a 6.4% hit to his total compensation, which was $12.9 million last year; and Franklin Resources Inc. CEO Gregory E. Johnson received a 4.4% decrease in total compensation to $9.5 million, according to SEC reporting standards.

Mr. Hooley retired from the CEO post at State Street at the end of the year and was succeeded by Ronald P. O'Hanley on Jan. 1. Mr. O'Hanley, who was previously president and chief operating officer, saw his total compensation decrease 18.6% to $8.3 million last year.

Under SEC calculations, Charles Scharf, the CEO of Bank of New York Mellon (BK) Corp. (BK), saw his total compensation fall 45.1% to $9.4 million — but under the company's estimates, which take into consideration additional money paid this year for 2018 performance and special sign-on pay when Mr. Scharf was appointed CEO in July 2017, he was awarded $18 million last year, proxy filings show.

Asset declines

Asset managers experiencing a decline in their asset base, particularly in the volatile fourth quarter, may have been prompted to take a hard look at CEO pay, as "that's where you see a lot of compression if the firm is not doing well," said Amanda Walters, a New York-based senior manager at Casey Quirk, a practice of Deloitte Consulting LLP.

Last year ended with relatively flat revenues for publicly traded asset managers, which saw 1.1% revenue growth last year, while asset growth during that same period was -7%, Ms. Walters said.

Times have changed in the last few years, and a lot of asset managers are investing in major strategic decisions, whether that be mergers and acquisitions, technology investments, expansion into new geographic markets or assessing their product set, she continued.

"We may see the cost structure of these organizations change a bit, in addition to compensation," Ms. Walters later added. "Overall, the costs to run an asset management business are certainly not going down. When you (realize) that so much of that cost is made up of people … and of the top paid professionals, it's the place where you can really move the needle to free up cash flow for those longer-term investments."

Alan Johnson, managing director and president of compensation specialist Johnson Associates Inc., New York, said he expects CEO pay to vary, with slightly more firms raising pay in 2018, despite the down fourth quarter. Asset managers will look at financial and investment results, as well as the company's ability to attract new assets when assessing compensation, however, he added.

At asset management firms, there is an expectation that CEO compensation, particularly annual or long-term incentive pay, be linked to the successful performance of the company, said Michael J. Monahan, a New York-based principal at Grant Thornton LLP, who is in charge of the consulting firm's human capital services practice in the Northeast.

"(A firm's) assets under management seems to still be the most important criteria — but also the performance of the assets," Mr. Monahan said.

Pay raises

Among the six CEOs with pay increases, T. Rowe Price Group Inc. President and CEO William J. Stromberg saw his total compensation increase 12.1% to $13.1 million. His compensation was approximately 126 times that of the median employee's 2018 compensation.

Regarding Mr. Stromberg's pay bump, the proxy statement said "this increase in total compensation reflects the compensation committee's assessment of Mr. Stromberg's performance as CEO and aligns with the company's achievement of annual and long-term financial and strategic results ... Considerations were also made when comparing Mr. Stromberg's pay to his peers in the industry."

Achievements that T. Rowe Price's compensation committee considered for Mr. Stromberg included the firm's annual net revenues growing nearly 11% and diluted earnings per share on a non-GAAP basis increasing nearly 32%, the proxy statement said. The firm's overall investment performance also "remained strong" for the three-, five-, and 10-year periods against T. Rowe's peers, the filing said.

Goldman Sachs Group (GS) Inc. CEO David Solomon saw his total compensation rise 26.2% to $20.7 million in 2018, having been in his CEO post since Oct. 1, succeeding Lloyd Blankfein. Mr. Solomon was previously president and co-chief operating officer at the firm. Mr. Blankfein made $23.4 million in 2018, up 6.3% from the previous year.

In its proxy statement, Goldman reported that its CEO pay ratio for 2018 was 151:1.

The embattled former CEO of Wells Fargo & Co., Timothy J. Sloan, also received a raise — a 4.9% increase in pay last year to $18.4 million, proxy filings show. Last month, he stepped down from the post and was replaced on an interim basis by the firm's general counsel, C. Allen Parker. Mr. Sloan made 283 times that of the median employee at Wells Fargo.

After being promoted to CEO of Northern Trust Corp. on Jan. 1 of last year, Michael O'Grady saw his total compensation rise by 49.8% to $8 million for the year, putting the CEO pay ratio at 109:1. Mr. O'Grady added the CEO title to his role as president last year, replacing former chief Frederick H. Waddell.