What the Wall Street Titans Earned
by Matthew Craft
Friday, September 26, 2008
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Richard S. Fuld Jr., chief executive officer of the now bankrupt Lehman Brothers, earned $354 million over five years.
Much of the outcry in the current fight over a fat bailout for Wall Street focuses on the size of Wall Street's fat paychecks.
Bottom line: If Wall Street executives want part of the $700 billion bailout proposal, they'll need to accept some curbs on their pay. The details have yet to be settled, but Congress and legions of irate constituents managed to push Treasury Secretary Henry Paulson into accepting some restrictions. Most likely they'll have to give up lucrative exit packages from failing firms.
Executives at the center of the current financial storm happened to collect some of the largest. Lloyd Blankfein, chief executive officer of Goldman Sachs, took home $74 million in salary, bonuses and other awards last year. Richard Fuld, chief executive of the now bankrupt Lehman Brothers, received $71.9 million.
Over the past five years, Fuld made $354 million leading his company on a wild ride that ultimately ended in bankruptcy. He was Lehman's biggest individual shareholder.
Other failed leaders did equally well. James E. Cayne, former chief executive officer of Bear Stearns, made $49.31 million over the last two years. He famously fought the bailout of Long-Term Capital Management, the debt-heavy hedge fund in 1998, only to steer Bear Stearns into a fatal debt-heavy foray into mortgage securities. The avid bridge player was busy at a tournament this spring when Bear Stearns melted down.
Martin J Sullivan, former chief executive officer of American International Group, raked in $39.6 million in the last three years. Sullivan oversaw two quarters of record losses as the insurance giant's head. Shareholders pressured him to quit in June. Severance package plus bonus: $19 million. The Fed took effective control of the company after bailing out its bad bets on credit default swaps. Price tag: $85 billion for 80% of the stock.
The argument for limits is straightforward. Some of the highest-paid executives in the country run banks whose practices have dragged down the entire financial system. In exchange for taxpayers shouldering the burden of their risky assets, Wall Street's executives should submit to some restrictions. Rescue money shouldn't reward mistakes.
Lloyd C. Blankfein, chief executive officer of Goldman Sachs, earned $110.75 million over two years.
"It's hard to argue that any of the compensation for top executives on Wall Street is reasonable," said Rolfe "Rik" Kopelan, a managing partner at Capstone Partnership, an executive search firm. Kopelan, who recruits for companies across Wall Street, wonders how anyone can justify the rise in pay for executives.
In 2007, for instance, corporations paid top executives 275 times the earnings of an average worker, compared with 71 times in 1989, according to research from the Economic Policy Institute. Kopelan said Wall Street compensation looks out of whack even when comparing executives. Lehman's Fuld made only $1.8 million less than Goldman's Blankfein. "Goldman was three times the size and three times as successful, so where's the sense in that?"
The real problem, according to corporate governance researchers, isn't the amount executives receive, it's how companies pay them. "The limit is OK--that's fine," said Paul Hodgson, a senior researcher at the Corporate Library, a governance group. "But pay packages need to be restructured."
Most companies link compensation to quarterly performance, encouraging short-term gambles. When the bets pay off, executives reap the rewards, but when the bets sour, as they have in the latest financing crisis, the people who took the risks don't have to return their bonuses. Some, such as Lehman's Fuld, choose to hold onto their company's equity. But without holding periods, even restricted stock can be sold as soon as it vests.
One way to align pay with long-term incentives and discourage risky bets would be to stretch compensation over more years. That's already how many companies reward their managing directors, Kopelan notes. Directors sometimes make a third of their pay in cash in the first year and receive the rest in equity over three to five years. "That's how they do it with their own employees," he said. "They're holding their employees accountable, but they don't hold themselves accountable."
Hodgson likes two proposals in a draft bill currently in the House of Representatives. One makes it easier for shareholders to nominate board members. Another allows shareholders to hold a non-binding vote on executives pay packages. "At least that way, the shareholders can say, 'We agree with you, that's going to work,'" Hodgson said.
http://finance.yahoo.com/career-work...Owj6Qn7dxO7sMF
What the Wall Street Titans Earned
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