BOSTON — Many top executives at large financial services companies saw a big jump in pay last year.
Total compensation rose by an average of 27.4% to an average of $21.2 million in 2006, versus $16.2 million in 2005, according to an analysis by Salary.com Inc., which looked at the pay packages of more than 25 executives at 10 companies.
The average salary of the executives in the study rose 10.7% to $555,778, according to an analysis by Salary.com, a Waltham, Mass.-based provider of web-based compensation management products.
The increase comes as regulators and legislators are keeping a close eye on executive compensation. The Securities and Exchange Commission last year adopted broad regulations that require companies to disclose more details of executive compensation.
It also comes amid banner years at many financial services companies.
The Dow Jones U.S. Select Investment Services Index, which tracks the stocks of such publicly traded companies as The
Charles Schwab Corp. of San Francisco and The
Goldman Sachs Group Inc. of New York, climbed more than 34% last year.
“The majority of [financial services firms] — to the best of my knowledge — have experienced increases in earnings year over year,” said Peter Gonye, a senior director in the New York office of Spencer Stuart, a Chicago-based global executive-search firm. “Obviously, that enables them to see progressive increases in compensation levels.”
James Dimon, chairman and chief executive of JPMorgan Chase & Co. in New York, was among those registering the biggest gains in total compensation, according to Salary.com. He raked in $41.2 million last year, up 85% from the amount in 2005.
Charles Prince, chairman and chief executive of New York-based
Citigroup Inc., saw a less dramatic increase, garnering $25 million, up 9% from the 2005 figure.
Gregory Johnson, president and chief executive of Franklin Resources Inc. in San Mateo, Calif., received $9.3 million last year, a 35% increase over his 2005 package. At another fund firm,
T. Rowe Price Group Inc. of Baltimore, newly retired George Roche took home $5.1 million as president and chairman, up 39% from the amount in 2005.
Goldman Sachs chairman and chief executive Lloyd Blankfein’s compensation totaled $54.3 million, up 43% from the amount in 2005. Goldman’s fiscal 2006 profit totaled $9.5 billion, up 70% from that of the previous fiscal year.
Berkshire Hathaway Inc. chairman and chief executive Warren E. Buffett, however, received just $214,250 in total compensation, down 31% from the amount in 2005. His pay fell even though Omaha, Neb.-based Berkshire’s 2006 profit topped $11 billion, up 29% from that of the prior year.
In fact, the Oracle of Omaha’s pay was just $15,862 more than the $198,388 that Mr. Blankfein received last year to cover the cost of a car and driver. In a regulatory filing, Goldman said that Mr. Blankfein has a car and driver for security purposes.
Executives seeking jobs would do well to not ask for perks and instead take compensation in cash or restricted stock, said Ken Rich, a managing director in the New York office of Edward W Kelley & Partners Ltd., a London-based global executive-search firm.
“If somebody reads that somebody has a golf club membership of $50,000 to $100,000, then some shareholder is going to say, ‘Wait a minute, what’s all this about?’” he said.
Although perks get attention, they generally don’t add up to as much money as many people think, said Mr. Rich, who has spent 24 years in the executive-search business.
Other areas often add up to a lot and rightfully are attracting more scrutiny, he said.
“Retirement packages and severance arrangements often result in major payments being made to individuals that often could have been better thought out by management and the board of directors of the respective companies,” Mr. Rich said. “And some severance arrangements have been, frankly, absurd.”
After rising during the 1990s, pay packages for top executives at financial firms dropped off earlier this decade, particularly after 2001, Mr. Rich said. However, executives started to see pay increase “dramatically” in 2005 and that continued through 2006, he said.
“The anticipation is that it will continue through 2007, but no one [can] really predict what 2008 will bring,” Mr. Rich said.
It is possible that in trying to get the best people, many firms doled out expensive long-term contracts, which could pressure profitability if business slows, he said.
Earnings-wise, some financial firms fared better than others last year, said Gerard Cassidy, a Portland, Maine-based analyst with RBC Capital Markets of Toronto.
“Generally speaking, companies whose businesses were tied to the capital markets and asset management businesses had strong years last year, and that was due to the strength of the overall capital markets,” he said.
Although the new SEC rules that took effect for companies whose fiscal years ended on or after Dec. 15 are designed to make executive pay more transparent, they have complicated matters for compensation professionals, said Gigi Gao, a senior compensation consultant at Salary.com.
For instance, the proxy statement summary compensation tables still list a “bonus” column, but the definition has changed.
Previously, a bonus was defined as an annual cash payment awarded to an executive for meeting or exceeding certain goals. Now, the column is for discretionary bonuses — those not tied to predetermined performance targets, Ms. Gao said.
