FTfm has trawled through the annual reports and regulatory filings of nearly two dozen US and European fund managers to shine a light on the salaries of chief executives who together oversee combined assets of more than $10tn.
From Larry Fink and Martin Flanagan in the US to Yves Perrier and Maarten Slendebroek in Europe, our analysis yields some surprising findings, not least who wins top billing for the bulkiest pay package.
Pay awards to industry leaders varied widely in 2017, a banner year in which earnings for the asset management industry hit new heights after a record increase in annual profits.
Only a tiny number of asset managers disclose details of salary awards made to top staff, ensuring that executive pay remains a hugely opaque issue across the investment industry globally.
This lack of transparency has helped fuel complaints that lavish rewards for top executives of asset management businesses constrain them from policing excessive pay awards at the thousands of companies where they are large shareholders. Asset managers, however, vigorously deny this criticism.
Data for the pay, revenues, profits and assets of UK and European managers that report in sterling or euros have been translated into dollars using average exchange rates over the 12 months to the end of each company’s reporting year. Exchange rate fluctuations mean the growth rates for pay, revenues, profits and assets differ from information presented in the statutory accounts.
Mario Gabelli, the majority owner of Gamco, a $43bn New York-listed value focused investment manager that he founded as a research provider in 1976, heads the list of top earners even though he leads one of the smallest companies, measured by assets, in FTfm’s survey.
Mr Gabelli earned $69.4m in 2017, a sum equivalent to more than 43 per cent of the company’s operating profits last year. His pay structure is unusual because Mr Gabelli does not take a base salary or cash bonus and instead his remuneration is entirely made up of restricted stock units.
But his pay is still more than double the $28m granted to Larry Fink, chairman and chief executive of BlackRock, the world’s largest asset manager. Mr Fink’s base (fixed) salary has remained unchanged at $900,000 since 2014, so the 9.6 per cent increase in his overall pay last year was due entirely to performance-related earnings.
Mr Fink is additionally entitled to about $88m in shares that have not yet vested. BlackRock gathered $367bn in new cash in 2017, its best year on record, helped by the growing appetite of investors worldwide for low-cost tracker funds.
Mr Slendebroek, chief executive of London-listed Jupiter, registered the largest percentage increase in pay among companies unaffected by leadership changes or merger activity. His base salary was unchanged at £250,000 but the maturation of several long-term incentive plans boosted his overall pay.
William Stromberg of Baltimore-based T Rowe Price and Joe Sullivan of Legg Mason are other top executives that enjoyed eye-catching pay increases. Luke Ellis of Man Group, the London-listed hedge fund manager, appears to have been given a large pay rise but he only took on the top job in late 2016.
Tim Wright, leader of the asset management reward practice at PwC, the professional services firm, said that many investment companies registered double-digit revenue growth in 2017 and an improvement in profit margins that led to an industry-wide increase in chief executive pay.
“It is hard to argue that this is not justified by the financial performance and improved shareholder returns of the industry in 2017, but clients and customers are asking more questions about executive pay awards,” said Mr Wright.
Mark Coombs, the boss of Ashmore, saw the largest percentage drop in pay even though the London-based emerging markets specialist attracted record new business inflows of $16.9bn in its latest fiscal year, which ended on June 30. The fall in Mr Coombs total pay was due entirely to lower bonus payments.
Changes in leadership or mergers and acquisitions activity have affected some of the pay data presented in the table. Andrew Formica’s 2017 pay was based partly on prior agreements made while he was chief executive of Henderson, before its merger with Janus Capital, and partly on new arrangements following the marriage between the two companies. Sergio Albarelli only joined Azimut of Italy as chief executive in October 2016, so no previous full-year comparison was possible.
Comparisons between the salaries of chief executives and other senior staff with their peers at rival companies are fraught with difficulties because of the variety and complexity of performance-based measures that account for the bulk of top executive pay awards.
“There has been resistance among asset managers to efforts to shrink the performance-related elements of CEO pay structures in comparison with the banking industry where regulators have pushed for reductions in bonuses and incentives that were believed to have encouraged excessive risk taking in the approach to the 2007-08 financial crisis,” said Mr Wright.
One simple way of levelling the playing field is to measure total chief executive pay as a ratio of annual revenues, expressed in basis points.
Yves Perrier of Amundi, whose salary rose 7.5 per cent to €2.58m last year, stands out as the least costly chief executive on this measure, accounting for just 9.5 basis points of 2017 revenues. Mr Fink also scores well on this metric, costing just 22.4bp of BlackRock’s revenue.
The most expensive chief executive (excluding the outlier Mr Gabelli of Gamco, who accounted for 19.2 per cent of revenues) was Jonathan “Jono” Steinberg, the founder of New York-based exchange traded fund provider Wisdom Tree. The son of Saul Steinberg, the legendary Wall Street financier, was paid 130bp of revenues even after his total pay fell by almost 44 per cent to just under $3.1m last year.
Carl Sjostrom, founder of London-based consultancy Viti Solutions, has provided advice to numerous remuneration committees at banks, fund companies and private equity managers. He said that chief executive pay was seen as a litmus test for whether the other work by a board is being done correctly.
“Compensation is all about signalling but the arrangements of executive pay packages are more of an art than a science,” said Mr Sjostrom.
He added that meaningful comparisons between chief executive salary packages are problematic because incentives and benefits have different purposes and are usually applied over a variety of time periods.
Many of the world’s smaller and medium-sized asset management companies are privately owned or operate as partnerships and are not obliged to disclose details about salary.
Some of the world’s largest asset management operations are owned by banks and insurers, which do not report information about pay to staff in those units. Pennsylvania-based Vanguard, the world’s second largest asset manager, has never disclosed any details of the salaries of its top brass even though it regularly boasts that its funds are entirely owned by their investors.
“Compensation committees for listed players, however, face a difficult job in trying to keep an eye on privately owned peers and competitors where there is often less transparency while balancing that with their own disclosure requirements,” said Mr Wright.
Widespread public anger at lavish pay for top company bosses has led to a growing number of shareholder revolts in the US and Europe. This has created numerous headaches for leading asset managers who must balance their roles as corporate stewards with their own requirements to reward and retain their top staff. Many of the world’s biggest asset managers face increasing scrutiny of their voting records amid mounting concerns that they are failing to reflect the public mood on executive pay.
BlackRock, Vanguard, Fidelity and T Rowe Price voted in favour of more than 90 per cent of proposals on pay proposed by companies in 2017, according to Proxy Insight, the data provider.
Profits are operating profits for US companies and pre-tax profits for the UK and European managers. The profits data for Investec is also operating profits. *Janus Henderson and Standard Life Aberdeen have co-chief executives. Source: company reports
