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Morning Coffee: Citi’s last bonus announcement shows Goldman’s largesse. How to make $600m without doing anything

An AI rendition of Jane Fraser, drinking coffee and thinking about David Solomon's pay

What a difference a year makes.  In 2022, Jane Fraser of Citigroup was earning almost as much as David Solomon of Goldman Sachs ($24.5m plays $25m).  Now that the official numbers have become available for CEO pay for 2023 across the Street, however, it seems that she’s fallen behind – while D-Sol’s total comp went up to $31m, Fraser is getting a comparatively measly 6% rise to $26m.  She is now by quite some margin the worst paid of the big US bank CEOs, which since she’s the only woman among them, some might say is not a great look. But on the other hand …

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These things are never what they seem.  Bankers’ compensation as reported in the published accounts bears only a very weak relationship to the number in the bonus letters.  And the letters are, in turn, often surprisingly far away from the amount of money which ever ends up in someone’s bank account.

Jane Fraser’s 2023 comp, for example, is made up of $1.5m of salary, and $24.5m of “stock-based and cash incentive awards”, the overwhelming majority of which will vest in some future year.  She will also have received amounts this year which relate to past deferred compensation schemes, which won’t have been recorded in this year’s accounts because they have already been reported in past years.

This is also true of the Solomon award, which was $2m of salary, $20.3m of “performance-based restricted stock units” and another $8.7m of variable compensation of other forms.  Which means that we really don’t know how much either of them have earned this year, and they won’t know themselves until the next five years’ worth of performance and share price data are in.  The same is true of all the other CEOs – it’s perfectly possible that things could turn out in such a way that Jane Fraser ends up being the best paid CEO of 2023 and James Gorman the worst.

But more importantly, anyone looking for fairness in banker compensation is looking for the wrong thing in the wrong place.  Pay awards are not meant to be a judgement on anyone’s intrinsic worth; they are partly a reflection of the labour market, and partly a tool to align incentives.  This is true at almost every level from first year Analyst to the top MDs, and it’s even true of the C-suite.

 So David Solomon probably got paid up this year because his next best offer might be a very lucrative buy side role indeed, and because the Goldman board don’t want the chaos and distraction of losing him. And Jane Fraser will have received a pay rise despite the fact Citi profits were 40% lower this year because the main reason they fell was her restructuring program – exactly the kind of short-term pain, long-term gain initiative that companies don’t want to incentivise their CEOs to duck.

As an old proverb of the industry goes, you can drive yourself stark raving mad by worrying about what other people are getting paid.  It’s very unlikely that any of the big bank CEOs will be spending much time comparing themselves to each other, and arguably nor should we.

Elsewhere, but thematically linked, it’s been noted that due to a very strong performance year for Pershing Square Capital Management, Bill Ackman has managed to climb into the Top Ten best paid hedge fund founders.  And more than this – he’s done so without making any major changes to the investment portfolio he’s held for two years.

Of course, masterly inactivity can itself be a sign of genius – apocryphally, the advertising executive Ted Bates was once asked “what am I paying you for?” by a client for whom he’d run the same ad for thirty years.  The answer was “you’re paying me to stop your marketing department from changing the ad”.  Similarly, Ackman presumably gets presented with hundreds of investment ideas every week, and probably researches a couple of dozen of them himself.  To conclude, over and over again, that the new and exciting thing isn’t any better than what his fund already owns is some pretty unusual strength of character.

Meanwhile …

Parental leave at LSE Group has been extended to 26 weeks, beginning (for some presumably good reason) in July. (Financial News)

ExodusPoint has closed its Paris office, two years after opening it.  Some of the team there have relocated to London; given the state of the labour market the rest will probably have found jobs pretty quickly.  This doesn’t seem to be much to do with Paris as a centre, as much as to do with statistical arbitrage not having been a profitable strategy for ExodusPoint. (Business Insider)

On the other hand, a number of tech firms and VCs who shifted to Miami are going back to San Francisco; maybe some banks will also realise that they made the decision to shift to the Florida climate based on how pleasant it was in winter, but now they have to try to exist there in summer. (WSJ)

If you want to be CEO of a big family office, and you don’t have the most common qualification for doing so, which is to say “be a member of an extremely rich family”, then you need to sweat on the alternative routes – an MBA or CFA, lots of experience in banking and “a deep rolodex of other family offices. (Institutional Investor)

Barclays wants to earn more revenue from the same or less capital, and to get more fee income out of its lending clients.  Although there’s nothing intrinsically wrong with this as a strategy, there’s a certain element of “stop me if you’ve heard this one before”. (Bloomberg)

In some ways, Karl Morris of Ord Minnett is a real old-school stockbroker – despite being CEO he still has clients of his own.  In other ways he’s not old school at all, because in 31 years of being married, he reckons he’s been to Friday after-work drinks twice. (AFR)

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AUTHORDaniel Davies Global Editor
  • M&
    M&P
    21 February 2024

    Please tell me in what world this CEO deserves a salary increase, let alone a pay package like that when the company is in disarray, is losing money hand over fist, and can't find its way out of a paper bag? Fraser, along with the board needs to go ASAP

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