May kicked off, as always, with the Woodstock of Capitalism in Omaha.
40,000 Berkshire Hathaway shareholders gathered to drink in the wisdom of Warren Buffett and to celebrate his 50th anniversary as everybody’s favorite CEO.
This is also the season when we find out what CEOs made last year; it fascinates plutocrats and proles alike, including us. We recruit executives for institutional money managers, so we eagerly scan the proxy filings to see who’s making what.
There’s never any suspense about Mr. Buffett’s pay, though. He makes billions for his shareholders, but every year accepts an almost laughable $100 thousand emolument for his efforts.
He actually makes rather more than that (as we’ll see below), but he’s a good example of the mysteries surrounding CEO compensation.
[drizzle]In this letter we’ll take a close look at the latest CEO compensation at publicly-listed money management firms.
Inspired by an act of Congress, we’ll also consider the relationship of pay to shareholder returns.
If there are any more Buffett-like CEOs, we’ll flush them out. If, as we suspect, there are some anti-Buffetts who are generously compensated while the stock price shrivels, we’ll finger them too.
Introducing the Skorina 50
As executive recruiters we have an unquenchable curiosity about the pay of senior executives in the investment-management world.
Unfortunately, many of the biggest for-profit money managers aren’t about to divulge those numbers. We’d love to know what William McNabb makes as CEO of Vanguard, or James Simon’s comp at Renaissance Technologies. But they, and many others, are not listed on the stock exchanges and therefore can keep that information confidential.
Still, many other important asset managers are public companies, and the number is growing as major private-equity players and other managers seek access to the stock markets.
We’ve listed 2014 pay for 50 CEOs who run some of the biggest publicly-traded money-management firms.
Most are “pure” asset managers, but we also include some big banks and insurance companies which have major AM platforms among all their other lines of business. We limited our list to firms which have been publicly traded for at least five years, for reasons which will become apparent.
Then we try to measure how their pay is justified by the returns they generated for their stockholders. Actually, this was Congress’s idea, but we’re going to play along and see if it makes sense.
First: who made more and who made less, in raw dollars:
The Skorina 50: CEOs ranked by 2014 Total Compensation
|–||CEO||Total Comp 2014||Company||AUM (000,000)|
|1||Mario J. Gabelli||$88,518,411||GAMCO Investors||$47,500|
|3||John R. Strangfeld||$37,483,092||Prudential Financial||$1,176,000|
|4||James Dimon||$27,701,709||JP Morgan Chase||$1,700,000|
|5||James M. Cracchiolo||$24,455,192||Ameriprise Financial||$806,177|
|6||Laurence D. Fink||$23,862,458||BlackRock||$4,650,000|
|7||James P. Gorman||$23,270,044||Morgan Stanley||$403,000*|
|8||Lloyd C. Blankfein||$22,162,912||Goldman Sachs||$856,000|
|9||John G. Stumpf||$21,426,391||Wells Fargo||$496,000|
|10||Richard K. Davis||$19,373,076||U.S. Bancorp||$55,000|
|11||Joseph L. Hooley||$18,842,196||State Street||$2,448,000|
|12||Larry D. Zimpleman||$16,919,388||Principal Financial||$519,300|
|13||Malon Wilkus||$16,902,800||American Capital||$22,000|
|14||Gregory E. Johnson||$15,904,296||Franklin Resources||$880,100|
|15||Martin L. Flanagan||$15,622,002||Invesco||$792,400|
|16||Brian T. Moynihan||$15,342,399||Bank of America||$902,900|
|17||Steven A. Kandarian||$15,163,802||MetLife||$473,700|
|18||Frederick H. Waddell||$12,435,522||Northern Trust||$934,000|
|19||Walter W. Bettinger II||$11,841,179||Charles Schwab||$258,400|
|20||Gerald L. Hassell||$11,659,528||BNY Mellon||$1,700,000|
|21||Joseph A. Sullivan||$11,548,620||Legg Mason||$709,100|
|22||William S. Demchak||$11,337,904||PNC Financial||$135,000|
|23||Thomas E. Faust Jr||$11,247,058||Eaton Vance||$296,000|
|24||Kenneth M. Jacobs||$9,985,527||Lazard AM||$197,000|
|25||Brady Dougan||$9,749,724||Credit Suisse AM||$1,377,000|
|26||Colin Dyer||$9,579,943||Jones Lang Lasalle||$53,600|
|27||William H. Rogers, Jr||$9,190,668||Sun Trust||$45,541|
|28||James A.C. Kennedy||$8,902,148||T Rowe Price||$746,800|
|29||Richard M. Weil||$8,147,875||Janus Capital Grp||$183,100|
|30||Henry J. Herrmann||$7,686,583||Waddell & Reed||$123,700|
|31||Ronald J. Kruszewski||$6,958,987||Stifel Financial||$19,000|
|32||Bruce Flatt||$6,651,981||Brookfield AM||$200,000|
|33||Henri de Castries||$6,514,340||AXA Group||$1,545,170|
|34||George R. Aylward||$7,055,714||Virtus Invest Partners||$56,700|
|35||Robert E. Sulentic||$6,367,953||CBRE Group||$90,600|
|36||Steve Vaccaro||$6,121,559||CIFC Corp||$14,000|
|37||Paul C. Reilly||$6,008,669||Raymond James||$66,700|
|38||Sean M. Healey||$5,369,597||Affiliated Mgrs Group||$626,000|
|39||Russell D. Goldsmith||$5,018,050||City National||$32,700|
|40||Roger C. Altman||$5,746,331||Evercore Partners||$14,000|
|41||John P. Calamos, Sr.||$4,525,606||Calamos Advisors||$23,500|
|42||Jonathan Steinberg||$4,380,657||Wisdom Tree||$39,300|
|43||G. Lowenthal||$3,950,320||Oppenheimer Holdings||$25,900|
|44||C. Donahue||$3,658,244||Federated Investors||$362,900|
|45||Robert H. Steers||$3,124,486||Cohen & Steers||$53,100|
|46||Randal A. Nardone||$2,536,083||Fortress Investment||$67,500|
|47||Richard S. Pzena||$2,371,743||Pzena IM||$27,700|
|48||Alfred P. West Jr.||$1,763,562||SEI Investments||$253,000|
|49||Daniel S. Och||$1,141,613||Och-Ziff CM||$47,500|
|50||Ric H. Dillon||$1,035,400||Diamond Hill CM||$15,700|
N.B: *Morgan Stanley AUM – discretion & supervision
N.B: CIFC Corp has no designated CEO. Mr. Vaccaro is Co-President and CIO
In lonely splendor at the top of our list is Mario Gabelli, founder and CEO of GAMCO (from “Gabelli Asset Management Company”). That’s just where he sat on our last year’s list, and on many other lists. He received a princely $88.5 million in 2014.
Stockholder return (14 percent) was just OK over the past five years compared to the broad stock market and to other stocks in this sector. In 2014 GAMCO saw a $1 billion AUM outflow and only fair returns in its mutual funds.
But there’s innovation going on. He’s just the second asset manager signing up for Eaton Vance’s new “ETMF” fund structure. It will let an active manager offer an ETF-like product without having to disclose their holdings and trades every day.
Mr. Gabelli is a great admirer of Warren Buffett, by the way, and made the pilgrimage to Omaha this month. His Gabelli Asset Fund started buying Berkshire Class A shares in 1985 when they cost about $2000 each. Today they trade at more than $215,000. They’re both Columbia MBAs and both follow a similar value-stock investing style.
So, is he overpaid, as some might argue? He founded the company and owns most of it, and his pay formula resembles a hedge fund manager’s. He collects no base salary or bonus, but takes 10 percent of the company’s pretax profits off the top.
Whatever his virtues as investor (and philanthropist), his unusual pay formula virtually guarantees that he will rack up an unseemly-looking pay-to-stockholder performance ratio, as we’ll see below.
At the bottom of our list is Roderick “Ric” Dillon who runs Diamond Hill Investment Group, which isn’t even in Manhattan or Connecticut, but in bucolic Columbus, Ohio. (We refer carelessly to these people and firms as “Wall Street,” but that’s just metonymy. Also, we just like to say “metonymy.”)
Mr. Dillon made a relatively modest $1 million in 2014. But look at how his shareholders have done: 26.4 percent return over five years.
That’s much better than the broad market, and nearly twice the return to Mr. Gabelli’s shareholders. So, is he more fairly paid? This question foreshadows our next chart: a ranking by pay-to-performance ratio.
Our Pay-to-Performance ratio is just 2014 CEO comp divided by annualized total shareholder return for 2010-2014.
The Skorina 50: CEOs Ranked by Pay-for-Performance
Ratio indicates $ millions of CEO comp per 1 percentage point of annualized shareholder return.