Chief executive officers of large banks are notching markedly bigger pay increases than their counterparts at brokerage houses, insurance firms, and other rival companies, a new study shows.
The study, by KPMG Peat Marwick, found that CEOs at banks of more than $30 billion in assets saw their total cash compensation leap nearly 19% last year, versus a 12.4% jump for insurance chiefs and 10.2% for the heads of brokerages and diversified financial concerns.
At the same time, bankers are drawing a bigger chunk of their pay from incentives, bringing their compensation packages more in line with those of other financial executives.
"Banks are seeing themselves more like diversified financials, and that's the competition," said Rose Marie Orens, a Peat Marwick partner and an author of the study. "If you look at the banks over $30 billion, the lines are really blurring."
To be sure, banks have a long way to go to catch up with the juicy pay in rival industries. The average pay of the insurance and brokerage executives studied - $2.04 million and $3.75 million, respectively - dwarfed the $1.39 million paid to bankers.
The study reviewed the 1995 annual pay of the top three officers at 150 financial services companies - 87 banks, 42 insurance companies, and 21 brokerage firms.
The pay for bankers varied widely by asset size. Banks with more than $30 billion in assets paid their top three officers salaries that represented 24% of total pay. Banks with between $1 billion and $9.9 billion in assets paid salaries that represented 51% of pay.
The larger the bank, the more likely it is to enrich its executives along the lines of a brokerage house, said David Cates, a principal at Towers Perrin who specializes in employee pay.
"You see much more parity at the money-center banks - say, the top five in the country - than at the superregional banks, who still choke at those levels of compensation," Mr. Cates said.
The survey, like many other recent studies of executive compensation, also concluded that salaries represent a shrinking percentage of the pay package for high-level bank executives.
Many companies, including banks, are using stock options and other noncash rewards to motivate managers, these surveys found. As a result, bankers' pay is catching up to that of executives in other industries, and bank directors are deciding executive compensation based on the results that management delivers.
Peat Marwick also found that bank directors are being encouraged to hold more stock. Ms. Orens said she believed many banks will soon be issuing guidelines for inside ownership.
"I don't think its going to be long before - whether it's voluntary or mandatory - board members are going to be asked to hold more shares," she said.
A similar recommendation was issued Wednesday in a report by a commission of 30 prominent finance executives. The panel, assembled by the National Association of Corporate Directors, concluded, among other things, that corporate directors should be paid partly in stock and should be required to hold some shares.
Bank analysts are taking a closer look at the pay packages of senior executives, particularly during and after mergers, said J. Lee McCullough, a principal at William Mercer Inc.
After a merger, "You get fewer top executives, but you get much better- compensated ones," he said.
Analysts are impressed when chief executives hold significant investments in their own banks - but not so much stock that it would prevent a takeover.
When at least half of a chief executive's pay comes from long-term incentives, the experts said, the manager is seen as more beholden to shareholders and less likely to prosper if performance lags.
"What we find is your high performer tends to set the salary at median levels and has a very incentive-based performance package - it can go up to multiples of the salary," Ms. Orens said. "It's a successful strategy - whether it pays off for the executives is their problem."
The survey found large discrepancies between large banks, which are more likely to adhere to this model, and small banks, where salaries played greater a role in executive compensation packages.
At the smallest banks polled - those with assets under $9.9 billion - chief executive officers earned a median of $385,858, which represented 51% of their compensation.
At midsize banks - with assets between $10 and $30 billion - the median CEO salary was $587,502, or 38% of total pay.
At the largest banks surveyed - those with assets over $40 billion - CEOs earned $822,414 in salary, which represented only 24% of their pay packages.