Best-paid fund management chief executives revealed

An ocean divides the offices of the chief executives at the biggest asset management houses in New York and London but a gulf, it seems, divides their pay.

While the likes of Franklin Templeton's Gregory Johnson and Legg Mason's Joe Sullivan saw their total pay increase by nearly a third last year, to $15.9m and $9.5m respectively, their biggest UK-based competitors saw their pay fall.

Schroders' Michael Dobson, for example, suffered a 3.6 per cent drop in pay to $11.9m, despite his company registering record profits in 2014. Schroders said he did not meet all of his performance targets.

Andrew Formica, chief executive of Henderson, similarly saw his pay fall by a quarter to $5.5m, in a year when his company was praised as a "comeback kid" by analysts after posting a 13 per cent profit increase. The company attributed the decrease to a lower contribution from his 2012 long-term incentive plan, although his short-term bonus was also a third less than the maximum possible.

Aberdeen Asset Management's Martin Gilbert and Ashmore's Mark Coombs also suffered big pay cuts of 6.7 and 81 per cent respectively on the back of outflows and reduced profits for both emerging market-focused fund houses.

Both PwC and Ernst & Young, the professional services groups, point out that US fund chiefs may have benefited from the strong rebound in the US stock market last year. US stocks outperformed UK stocks by around 8 per cent, enabling some US asset managers to deliver better returns to shareholders.

Other industry insiders, however, believe that public and shareholder criticism of excessive corporate pay in Europe has been felt more strongly by UK asset managers than their US rivals. This is despite the fact that UK fund chiefs already tend to earn far less than their US counterparts.

Carl Sjostrom, head of executive compensation for Europe at Hay Group, the consultancy, says: "[Asset managers in] the US are much more comfortable for pay to reflect how quickly [company] performance went up or down, and their metrics might not be as elaborate, as they have different governance pressures.

"[In Europe] there is a lot of scrutiny [of asset managers' pay] from the public and from the industry - it is very important that they are the standard-bearers of best practice. Remuneration committees are being very careful to make sure performance is achieved on multiple measures and it is not as easy to get full payment as it once was."

Deborah Hargreaves, director of the High Pay Centre, an independent think-tank, adds: "There is growing pressure on pay in the US but US society is polarised on issues like this. There is a very strong Wall Street lobby that says you should pay for talent and performance and anyone who wants to intervene in that is seen as - shock horror - a socialist."

The chief executive that received the biggest pay increase last year was Dick Weil of California-based Janus Capital, whose total remuneration jumped 75 per cent to $8m. His performance was largely judged by his contribution to the company's "strategy". The company's strategic goals were given a significant boost by the arrival of investment legend Bill Gross in the fourth quarter of 2014.

BlackRock's Larry Fink was the highest-paid executive in the sample analysed by FTfm, with a 12 per cent increase to $24m. Invesco's Martin Flanagan and Eaton Vance's Thomas Faust pay rose by more than 10 per cent to $16m and $11.2m respectively.

Of the UK's listed asset managers, only Jupiter and Man Group, which have brought in new chief executives in the past two years, increased their level of pay.

Jeanne Branthover, head of global financial services at Boyden, the New York headhunters, agrees that US groups are less susceptible to criticism of high pay.

She says: "US asset management executives are paid well and are getting increases that are good - the average is 10 per cent. This is an incredibly competitive business and firms will pay [their chief executives] well. Will shareholders or the public be upset about this? Not if the [fund companies] are making money.

"In the past two years a big difference in compensation has developed between Europe and the US and we are seeing fewer Americans wanting to expatriate because of this. Good or bad, it is much more American to allow CEOs to be compensated well if they are making wealth for themselves as well as other people."

The pay reductions for UK fund chiefs also mirror research published earlier this month by PwC. It demonstrated that executive pay among FTSE 100 companies is falling in real terms, with 45 per cent of FTSE 100 chief executives receiving no salary increase last year.

Tom Gosling, head of PwC's reward practice, attributed this fall in part to new shareholder voting rules in the UK that give investors more power over company pay proposals.

The consensus is that pressure on executive pay in Europe's asset management sector is unlikely to relent any time soon.

Amin Rajan, chief executive of Create Research, the asset management consultancy, says: "Clients have turned ultra-demanding in Europe. Big bonuses are attracting extra scrutiny, even when they are well deserved."

In March, the European Banking Authority said it planned to extend the reach of bonus restrictions already in place for banks to investment managers. The proposals, which were met with staunch criticism from the industry, could force several large fund houses, including BlackRock, Aberdeen and Schroders, to overhaul how they pay senior staff in Europe.

Schroders, Henderson, Old Mutual and Jupiter have introduced clawback measures for bonuses this year, according to Ignites Europe, an FT news service.

Adding to the pressure on pay, Simon Walker, director-general of the UK's Institute of Directors, wrote an opinion piece for The Guardian newspaper last month urging the UK regulator to investigate how asset managers pay their top staff.

"While pay at investment banks is taking up a shrinking portion of a shrinking pot, pay at asset management firms is taking a constant portion of a growing pot. This has all the ingredients of another scandal," he wrote.

Mr Sjostrom says: "This is an industry where the numbers are already pretty high. Unless performance continues to have a good run, pay will come down in the next couple of years. People will not jump for joy if [boards] approve high pay packages."

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation