'Bizarre' 2020 Led to Diverging Criteria for Asset Manager CEO Pay

Apr 8, 2021

The rubric for determining CEO compensation at asset management firms varied widely in 2020, as leaders steered their shops through uncertain waters.

Boards determined CEO pay based on their evaluation of what was important: some rewarded specific achievements, while others looked at employee wellbeing. But most attributed financial performance to the market rebound and kept pay roughly the same, says Larry Lieberman, senior managing director at executive recruitment firm Orion Group.

“It was a bizarre year, and every firm handled it differently,” he says.

The firms that raised CEO pay did so to reward the top executive for making it through the pandemic relatively unscathed, Lieberman adds.

Ameriprise Financial increased CEO James Cracchiolo's pay by 12% to $20.5 million for fiscal year 2020. During this time, Cracchiolo “grew assets under management and administration to a record high of $1.1 trillion, up 13% year-over-year,” according to the filing.

Cracchiolo is reported to have “strengthened product and distribution capabilities,” and “optimized” operating models and platforms within the asset management arm of the business. The board further praised him for expanded diversity training and inclusion efforts within the company.

Similarly, BlackRock CEO Larry Fink’s pay package of $29.9 million marked an 18% increase from last year’s $25.3 million. Fink was rewarded for “focusing the firm on strategic priorities, providing thought leadership, investment insights and risk management tools to our clients, and prioritizing the wellbeing of BlackRock employees and the firm’s culture,” according to the manager’s proxy.

However, BlackRock is facing a gender and racial discrimination lawsuit, in which a former employee alleges unequal pay. Additionally, claims related to harassment and inappropriate employee conduct have also surfaced in recent weeks, prompting the firm to contract a law firm to investigate complaints, as reported.

Fink’s pay increase was also attributed to his efforts to drive the company “and surrounding ecosystem around sustainability,” as well as the investment risks posed by climate change. He is also credited with helping communities through philanthropic efforts, according to the board’s performance assessment of Fink.

For the second year in a row, Blackstone CEO Stephen Schwarzman was the highest-earning CEO among public asset management firms. Schwarzman took home $86.3 million as part of his compensation package for 2020, according to a company filing. Last year’s pay packet amounted to 51% more than his $57.1 million compensation package in 2019. Schwarzman, who owns 19.3% of the company’s shares and received an additional $524.1 million in dividends, obtained his compensation increase as a result of strong financial performance.

Schwarzman wasn’t the only private equity boss to see a pay increase during a pandemic year. KKR head Henry Kravis saw his pay package increase 5% to $42 million in 2020 as a result of financial performance. Following the onset of the pandemic, however, Kravis volunteered to give up his $300,000 base salary, but he received an additional $39.3 million in dividends from his shares in the company.

Meanwhile, Apollo CEO Leon Black’s compensation package increased 63%, from $260,175 in 2019 to $423,687 in 2020, though he also received $128 million in dividends from his shares in the firm.

Covid-19 will have a lasting impact on what types of CEOs are needed in the future, says Jeanne Branthover, managing partner of the global financial services and fintech practice at executive search firm DHR International. “My clients will look at their leader and how the leader survived this, and ask whether this is the leader they want when another bad thing happens.”

Despite the need for strong leadership during the pandemic, some CEOs who had reports of good financial performance and progress on ESG issues saw their pay remain static last year, while others earned less.

Some of the rationale may be intended as a message to the company’s shareholders during what was a tough time, says Branthover. If the company experienced pay cuts or layoffs, raising CEO pay would send a bad message, even if financial performance was good, she says.

James Gorman, head of Morgan Stanley, was among the CEOs that earned less money. Gorman took home $29.6 million in 2020, 7% less than the prior year. This is despite a glowing performance review by the board, which stated that under Gorman’s leadership, the company achieved “record financial performance,” as it continued with acquisitions of E*TRADE and Eaton Vance.

Gorman is also praised for focusing on the health and wellbeing of employees during the pandemic, and for “strengthening the firm’s commitment to diversity and inclusion.”

Earlier reports estimated that Gorman earned $33 million when including the full value of restricted stock units, which is dependent on Gorman satisfying performance goals over a three-year period that has not yet ended.

Likewise, Goldman Sachs’ head, David Solomon, received a pay package of $23.9 million, 3% less than his 2019 earnings, despite “outstanding leadership in guiding the firm through the pandemic.”

Solomon “instilled strong focus on risk management and accountability throughout the organization, including with respect to reputational risk,” while he also “focused on employee welfare,” according to the board’s review. His work in “championing diversity and racial equity both internally and externally” and in leading operations surrounding a $750 billion sustainable finance target, were also cited as examples of outstanding performance.

Similarly, PNC Financial’s William Demchak took a 4% pay cut from the prior year, receiving just under $16 million despite leading the company “to achieve solid financial performance.” Demchak is credited with taking “decisive actions to reposition PNC strategically” by selling the firm’s equity stake in BlackRock and agreeing to acquire BBVA USA.”

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