$40 million seems to be the going rate for an investment-bank CEO these days.
Executive compensation expert Graef
Crystal has done the math, and finds that the pay for Lloyd Blankfein
of Goldman Sachs; Stanley O’Neal of Merrill Lynch;
John Mack of Morgan Stanley; Richard Fuld of Lehman
Brothers; and James Cayne of Bear Stearns is definitely converging
on pretty much the same point, despite a huge amount of disparity in income
and sales.
Crystal smells smoke-filled rooms. And it’s not just the CEO pay he’s unhappy
about, either: he notes that Goldman COOs Gary Cohn and Jon
Winkelried, as well as CFO David Viniar, are all making
well over $40 million as well. He writes:
It’s hard enough for shareholders to digest Blankfein earning just under
$60 million last year — even though his company produced a 52 percent total
return level. To learn that Blankfein’s two top associates earn within a hair
of his pay level, must be annoying in the extreme.
I don’t buy it. What’s annoying is when a CEO, taking credit for and profit
from his employees’ work, ends up with a vastly disproportionate part of the
company’s total profits. That’s not happening at Goldman, as is evidenced by
the small difference in pay between the CEO and his direct reports.
What’s more, Crystal fails to mention that by all accounts some Goldman traders
took home $100 million bonuses last year, thereby earning significantly more
than the CEO. And in fact it’s this that I think explains why the CEO pay at
investment banks is bunching.
CEOs aren’t fungible: if Cayne left Bear, he couldn’t start working easily
at Goldman. But traders are fungible in that respect, and indeed get
poached on a regular basis by investment banks competing against each other.
So there’s a real market in traders, and top traders anywhere are liable to
pull in more than the CEO.
But CEOs have egos, too – and they’re unlikely to want to earn significantly
less than employees several levels of management down. So if top traders are
getting $50 million bonuses, that in itself is likely to explain the $40 million
pay packages for CEOs.