Compensation for chief executives at the 20 largest financial companies in North America rose 7.7% last year. Goldman Sachs CEO Lloyd Blankfein took home $26 million, a 73% pay hike from the previous year. Considering Goldman’s impressive comeback year in 2012, is he overpaid? A funky algorithm used by Bloomberg says yes.
Bloomberg Markets magazine looked at three key measures to evaluate each firm’s level of success in 2012: share performance, return on equity and asset scores. Each bank’s totals were compared to that of their peers along with the compensation doled out to their CEOs.
Blankfein won the silver medal, labeled as the second most overpaid CEO, finishing behind Richard Fairbank, the chief of Capital One, who made less than Blankfein – taking home $17.5 million – but whose firm didn’t perform as well as Goldman Sachs.
Looking at the numbers, Goldman ranked highly in assets and share performance, finishing fourth in both categories, but its 10.7% return on equity dragged the firm down.
Scrapping the algorithm, is Blankfein overpaid? Rational arguments can be made on both sides. As Bloomberg states, Goldman slashed compensation as a proportion of revenue from 42% in 2011 to 38% in 2012 while increasing pay for its CEO. What they don’t mention is that Goldman employees actually took home more money, earning, on average, $399,506 in 2012, up from $367,057 in 2011. Goldman simply made more money with fewer people, hence the percentage drop.
Then you need to look at the year Goldman had compared to its peers. Unlike in recent years, Goldman didn’t make front-page news. J.P. Morgan, Bank of American, RBS and others stole the limelight with scandals and litigation while Goldman remained relatively clean. Plus, the bank made much of its hay in the second half of 2012, ending the year with optimism.
And if you’re not buying that argument, Blankfein made roughly the same as Barclays’ former investment banking head Rich Ricci, who was a walking scandal.
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