Mystified by the failure of big shareholders like mutual funds and pension funds to complain about the ever-rising executive pay at companies they invest in?
Look at the latest proxy statement of Waddell & Reed Financial Inc., a mutual fund company from Overland Park, Kan., that has investments totaling $34 billion.
It shows that Chief Executive Keith Tucker’s pay package for 2000 might be worth as much as $71.1 million. That would be the number if Waddell & Reed’s stock rises at an annual average of 10 percent over the life of the options he was granted. If the shares gain 5 percent a year, Tucker’s gain would be $29.5 million.
Tucker’s pay was on a par with that of Sun Microsystems Inc.’s CEO Scott McNealy, though McNealy’s computer company has a stock market value 19 times that of Waddell & Reed. Tucker and CEOs at other companies that manage mutual funds, 401(k) accounts and pension money would be embarrassed to talk about high pay elsewhere.
Jeffrey Lane, head of Neuberger Berman Inc., made $6.6 million last year. Three executives at T. Rowe Price Group Inc., Chairman and President George Roche and Vice Chairmen James Riepe and M. David Testa, in 2000 each received cash and stock options that will be worth about $6 million if T. Rowe’s stock price rises 10 percent a year.
These are ample numbers considering the size of money-management companies. Franklin Resources Inc. is the biggest publicly held U.S.-based fund company by stock market value. But its $11.2 billion market capitalization is only about half that of the $21.2 billion for the average company included in the Standard & Poor’s 500 Index of stocks.
Over the years, money managers have rarely criticized managements for any reason, let alone CEO pay. Fund companies don’t want to jeopardize their efforts to get contracts to manage these corporations’ 401(k) retirement plans, for instance.
Any criticism of pay would be turned back on the money managers themselves. How could Waddell & Reed justify Tucker’s pay or that of Henry Herrmann, its president and chief investment officer? Herrmann in 2000 got a deal worth between $17 million and $39.7 million, depending on the rate of gain in Waddell & Reed shares.
While the more-than-doubling of Waddell & Reed stock since its initial public offering in March of 1998 would justify some reward, Herrmann’s pay was more than that of four executives who make up the office of the president at Franklin Resources, which manages $268 billion in investments. That’s almost eight times more than Waddell & Reed.
In the year ended last Sept. 30, the Franklin four earned a total of $10.7 million or $15.7 million, depending on how much their company’s stock might rise.
Franklin’s pay was generous enough. The company is very much a family affair. Chief Executive Charles B. Johnson and Vice Chairman Rupert Johnson control 34.9 percent of the voting stock.
The three members of the committee that determined the pay of Franklin executives were nominally outsiders; but one, Peter Sacerdote, chairman of the investment committee at Goldman, Sachs & Co., was the brother-in-law of Charles B. and Rupert Johnson and the uncle of Charles E. Johnson, Franklin’s president.
The roster of well-paid money managers goes on. Stilwell Financial Inc., parent of the Janus mutual funds, gave CEO Landon Rowland options with a present value of $6.3 million last year in addition to his salary of $869,726. Joseph Monello, vice president of development for Janus, got options valued at $4.3 million along with a salary of $855,552.
Alliance Capital Management Holding LP, controlled by French financial services company Axa, paid President John Carifa $15.6 million in 1999, the last year for which figures were available. Because he got stock options, Carifa did better than CEO Bruce Calvert, who made $8 million.
Not even plunging stock prices and falling profits have brought curbs on executive pay. Reform certainly won’t begin with the money-managing fraternity.
David Pauly is a columnist with Bloomberg News.
