A lot of people go to Wall Street dreaming of big salaries. But today, the real money is in distributions.

Private equity firms’ standard compensation structure, which offers executives a special equity stake entitling them to a piece of the profits in their firm’s investments, has vaulted a handful of private equity kingpins to billionaire status. When there are substantial profits to be split, these stakeholders can take home tens of millions or much more in these profits, called distributions.

This has allowed some of L.A.’s biggest private equity executives to reel in huge paydays, without the notoriety that usually comes with them. And because it’s a practice limited to private equity, the industry’s compensation structure could prove to be a valuable recruiting tool.

Case in point: Antony Ressler, billionaire co-founder of Century City private equity and debt giant Ares Management and now part-owner of pro basketball’s Atlanta Hawks, does not appear on the Business Journal’s list of highest-paid executives despite taking home a nine-figure check last year.

Ressler isn’t on the list because his 2014 compensation, as reported to the Securities and Exchange Commission, totaled just $4.3 million – nothing to sneeze at, certainly, but a figure that pales in comparison with the $66 million taken home last year by this year’s top-paid chief executive: Jon Feltheimer of Santa Monica studio Lions Gate Entertainment Corp.

In fact, Ressler’s compensation falls short of the $5.6 million taken home last year by Dave Hirz, chief executive of Commerce grocery chain Smart & Final Stores Inc. – an Ares portfolio company.

But through his ownership stake in Ares’ funds, Ressler last year took home a whopping $113 million in distribution payments – and that’s on top of the $123 million he took home a year earlier.

If the compensation versus distribution distinction seems semantic, it’s not. Chris Chen, senior counsel at Century City law firm Sklar Kirsh, which works with several private equity clients, said there are big differences – and advantages – to this method of paying top private equity execs.

For starters, Ressler’s relatively small compensation package helps keep him out of the endless pipeline of stories demonizing exorbitant executive pay.

“If you’re an equity owner and you’re just receiving distributions, that’s not headline news,” Chen said.

Even better – for Ressler, at least – is that these distributions are treated as returns on equity and taxed as capital gains, which are taxed at a lower rate than ordinary income, such as salaries.

Those benefits are huge tools in helping private equity firms attract ambitious financiers.

“In terms of recruiting, the upside is huge,” Chen said. “And, frankly, any downside is outweighed by the upside.”

Distributions are big at other private equity firms, too. Downtown L.A.’s Oaktree Capital Management employs three of the four best-paid L.A. workers who are not chief executives: Scott Graves, Caleb Kramer and Bruce Karsh.

Like Ares, Oaktree primarily pays these top people in distributions on their equity in the firm’s funds – though unlike Ares, Oaktree reports those distributions to the SEC as compensation.

Alpha bet

Noor Menai is chief executive of downtown’s CTBC Bank Corp. USA, but before that, he spent three years in private equity as a managing director at Fajr Capital in Dubai. So he’s intimately familiar with the trade-off between the predictable salary he draws as a bank boss and the deal-based compensation he received as a private equity manager.

Menai drew a parallel between private equity compensation and the way Silicon Valley startups use equity to attract top talent in a highly competitive market. He believes the nearly limitless opportunity is what attracts top financial minds to the industry.

“I think it’s a very important function of making sure the best talent rises to the top,” Menai said. “It’s happening in Silicon Valley and now it’s happening in Los Angeles.”

He also defended the compensation structure, saying the kind of executive who can orchestrate the massive profits of a successful private equity deal should reap equitable rewards.

Again, Ressler and Ares are good examples. Ares bought Smart & Final in 2012 for $287 million in cash; the rest of the $975 million purchase price was debt that was put on the company. Today, Ares stock in Smart & Final – which it took public in September, is worth more than $750 million, not accounting for more than $100 million worth of stock the company has sold.

To Menai, that’s all the justification needed for Ressler’s big payday.

“If someone is creating $1 billion worth of value and for that they get a $100 million check, that’s the beauty of our system,” he said. “It’s about the alpha that you create.”