The $78 million compensation package that the Jefferies Group doled out to its top executives raised more than a few eyebrows â€" including those at Moody’s Investors Service.
The credit rating agency said in a note on Monday that it regarded the paychecks awarded to the top managers â€" its chief executive, Richard Handler, and its executive committee chairman, Brian Friedman â€" as a potentially ominous event for bondholders. (In Moody’s words, “credit negative,†meaning that the pay could contribute to a downgrade of the investment bank’s debt rating.)
Mr. Handler’s pay in particular drew a lot of attention. He earned about $19 million last year, including a $5 million cash bonus and a $13 million long-term equity incentive award. And he had the chance to earn about $39 million in restricted stock through 2015 if he met certain performance targets.
To Moody’s, the high pay is a reminder of “excessive compensation†among Wall Street firms, potentially leading investment banks to take excessive risks and irritating critics on Capitol Hill and within regulators.
Though Jefferies has performed well, largely avoiding the pitfalls that befell some of its bigger competitors, the high pay presents a few specific problems. It reinforces the idea that the firm’s strong performance rests with a few “key men,†whose departures could be disastrous. And it sends a reminder that the! investment bank has not taken steps to ensure that employees will suffer consequences from excessive risk-taking.
“While Jefferies has outperformed its peers, an excessive focus on short-term compensation has been at the root of many outsized trading, credit and litigation losses at investment banks,†the Moody’s analysts wrote. They added that the firm has not put in place measures like longer award vesting periods and more expansive powers to claw back compensation.
A Jefferies spokesman declined to comment on Monday. But the firm noted in its annual report last week that Mr. Handler and Mr. Friedman voluntarily returned some of their bonuses for 2012, as they have for the past few years. Mr. Handler’s job will expand once he becomes chief executive of the Leucadia National Corporation, which agreed to buy Jefferies in a $3.6 billion deal.
Shares in Jefferies were up slihtly in midday trading on Monday, at $19.99.
