The interest rate and trading environment may not have been ideal in 1994, but that didn't keep the top officers at many large banks from taking home more than $1 million apiece in total compensation last year, according to a survey compiled by the American Banker.

Although the 1993 Tax Act discourages all U.S. companies from paying more than $1 million in salary to chief executives, banks, like their counterparts in other industries, rewarded their managers with big cash bonuses and stock options.

In fact, Citicorp's John Reed was the only banker to earn more than $1 million in salary. As the nation's highest-paid banker last year, Mr. Reed also garnered $3 million in bonus pay.

The 1995 Citicorp proxy says that "based on its assessment of the chairman's performance and significant contribution to overseeing Citicorp's return to corporate strength ... the personnel committee increased Mr. Reed's salary. Prior to this adjustment, Mr. Reed's salary level had remain unchanged since 1990."

Some executive search consultants view the banking industry as a stellar example of performance-based compensation. "It's unusual to see an industry with such a wide variation in earnings performance," said Elizabeth Gall, regional head of the executive compensation practice at the Hay Group. "Some people got huge increases, and they are the people, in general, who had good profit performance."

Pay for Charles Sanford, chairman of Bankers Trust New York Corp., makes the same argument in the opposite direction. Mr. Sanford took a nearly 70% hit to his paycheck in 1994 and earned a meager bonus of $7,100.

"You'll find that his profits went down 40%," said Ms. Gall.

However, Mr. Sanford still earned a whopping $1.25 million in total compensation in 1994, most of which came from a $750,000 salary base that wasn't affected at all by the bank's trading and derivatives difficulties.

Another surprising winner in the bank executives pay sweepstakes was Thomas G. Labrecque, chairman of Chase Manhattan Corp. Mr. Labrecque, whose bank has been called directionless by analysts, came in second after Citicorp's Mr. Reed in overall pay, earning a whopping $3.5 million and a 51.1% increase in 1994.

Chase spokesman John Anderson said this made perfect sense. "We had record net income in 1994," he pointed out. "We were up 25%. We had a very good year last year."

However, Chase shareholders, including heavyweight investor Michael Price, who recently took a 6.1% stake in the bank presumably to shake up management there, may beg to differ.

Leon Farley, who runs an executive search firm based in San Francisco, said there are many reasons why a top-flight executive earns what he earns. And some of these reasons have nothing to do with the lofty-sounding goals of performance-based pay.

"Cash compensation is only one component, and it's the least important," Mr. Farley said. "There is not a price standard for basing rewards for the CEO that everyone agrees upon. Should it be return on assets or return on equity?

"Pay," Mr. Farley continued, "is so often determined by compensation committees whose members are chosen by the CEO and are sympathetic to him."

Lastly, "money tends to be a scorecard, and an issue of ego. Executives like to be well paid relative to their peers," he added.

In the future, consulting firms and headhunters said, there is likely to be even more pressure on banks to link executive pay with performance, particularly in the form of stock options.

According to Diane Posnak, a managing director at Pearl Meyer & Partners Inc., this trend will be felt even at smaller banks.

And if bank chairmen need to please their shareholders in order to keep their own pay at stratospheric levels, that will likely mean more consolidation in the banking industry.

Jerry Grundhofer, chairman and president of Star Banc Corp., earned a 55.44% pay increase in 1994 - the third highest. According to Robert Scharff, a principal in the Greensboro, N.C.-based Todd Organization, an executive benefits consulting firm, "Star made a lot of acquisitions last year, and that contributed to Grundhofer's pay increase.

"You buy a bank, and you can roughly double or triple the size of your own bank with the same number of people. You merge a lot of staff positions, cut overhead, expand in other places you haven't been. You almost can't help but make more money," he said.

"Layoffs are what's going on in the banking industry, and that's what is boosting performance. The only way to make money in banking these days is to make acquisitions. Performance improves, your bottom line improves, and that's what most of this compensation is based on," he said.

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