One of Wall Street’s relative minnows is getting a whale-size paycheck. Jefferies is paying boss Richard Handler $19 million for the year to November 2012.
That might not sound too rich considering that Goldman Sachs‘s chief executive, Lloyd Blankfein, raked in $21 million. But Jefferies is a much smaller firm, meaning Mr. Handler’s compensation equates to a huge 5.9 percent of earnings.
Bigger, bulge-bracket investment banks weren’t shelling out anywhere near that much even during the boom years. Now they’ve become stingier still. Mr. Blankfein’s boanza for last year represented less than a third of a percentage point of the bank’s $7.5 billion of net income, for example. Using the same cut of profit as Mr. Handler enjoys would bag Mr. Blankfein well north of $400 million. But it’s JPMorgan’s Jamie Dimon who would get the real bonanza at that payout rate â€" a cool $1.2 billion, more than 100 times his actual pay.
If the pay-to-profit metric doesn’t appeal, try one based on the bank’s value. The Handler handout works out at about half a percent of Jefferies’ market capitalization. The same math for Mr. Dimon would still get him within range of $1 billion.
Nothing even approaching any of these f! igures would wash for Jefferies’ larger rivals, of course. Likewise, paying Mr. Handler the same percentage of earnings as Mr. Blankfein would set his pay at $900,000 - handsome for most people, but miserly for a top Wall Street banker and chief executive.
Mr. Handler’s pay increase was, at least, matched by the increase in his firm’s share price last year. Even so, with Jefferies’ return on equity languishing at around 8 percent - below the 10 percent rule-of-thumb threshold for banks to beat their cost of capital - directors seem to have been a bit too generous.
And they risk repeating that in the future, having set up another stock incentive plan payable over the next three years worth as much as $39 million. It’s hardly the first board on Wall Street, though, to let pay get out of step with performance.
Antony Currie is an associate editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.cm.
