Top banking executives received fatter paychecks in 1996, thanks to bigger bonuses and grants of stock options in long-term compensation plans.
An American Banker survey of proxy statements filed with the Securities and Exchange Commission showed that the 100 highest-paid executives at banking companies collectively registered a 38.6% increase in salaries, bonuses, and other "cash-equivalent" compensation last year.
Yet their pay has not caught up to that of their counterparts in the securities industry. The highest-paid bank chief executive officer, Frank N. Newman of Bankers Trust New York Corp., earned salary and bonus roughly equal to that of the fifth-highest-paid securities CEO, David Komansky of Merrill Lynch & Co.
What's more, some lower-level banking company executives are climbing the compensation list because they are being paid according to investment banking or asset management standards. Bankers Trust senior vice president James E. Virtue ranked fifth in 1996 banker income-and ahead of all current banking CEOs when longer-term pay is factored in.
The total compensation for the 100 executives in the American Banker survey (see tables on pages 7 to 9) was $241.8 million. The executives represent 44 U.S. bank holding companies. Ten of those organizations each had five people among the 100 highest paid.
"Banks have had a phenomenal two years, and their executive pay packages continue to reflect that," said Rose Marie Orens, a partner in KPMG Peat Marwick's compensation consulting practice.
KPMG data indicate, however, how much commercial bankers still lag their investment counterparts.
A recent KPMG survey of 86 banks showed that total cash compensation of CEOs, including stock options, rose 15.3% last year. The median total pay for a bank CEO was $2.2 million.
At banks with more than $30 billion of assets, the increase was even more substantial. Chief executives at the 30 banks surveyed in that group saw an increase of 17.4% in total cash compensation, and their median was $3.3 million.
But at the 20 brokerage firms in the KPMG survey, top-executive pay jumped 37.9% from 1995. The median total compensation was $7.66 million.
Consultants said they expected the compensation gap to narrow as commercial banks diversify into such areas as asset management and equity underwriting.
"Compensation practices in banks have been staid because the industry has been staid and predictable," said John Carusone, president of Bank Analysis Center in Hartford, Conn. "I think that over time, with the expected integration of banks, insurance companies, and brokerages into a financial services mixture, it would be unusual if compensation did not begin to mirror the practices of those other industries."
Recently announced cross-industry mergers may accelerate a convergence that observers said is already apparent at Bankers Trust, which recently announced a plan to acquire Alex. Brown & Sons.
Bankers Trust's chairman, Frank Newman, received total compensation of $10.3 million in 1996, up 558.9% from 1995, when Charles S. Sanford Jr. held the job. Mr. Newman's 1996 salary and bonus was $5.67 million, and his long-term compensation-in the form of stock options and restricted stock- was $4.59 million.
His total was eclipsed by that of Mr. Virtue, the 36-year-old head of global finance. Mr. Virtue's total pay of $11.9 million included $6.5 million in long-term compensation.
"Bankers Trust is unique among banks because of its securities business," Mr. Carusone said. "But it represents the kind of diverse and integrated financial institution that many banks will look like in the future."
Executive compensation at State Street Corp. took a similar turn in 1996. Nicholas A. Lopardo, executive vice president and president of State Street Global Advisors, the Boston bank's asset management arm, received $2.8 million in total compensation.
Mr. Lopardo's annual salary and bonus of $2.2 million was higher than the $1.5 million of State Street's chairman, Marshall N. Carter. Long-term pay, however, brought Mr. Carter up to $3.28 million.
"It's a reflection of the market" that Mr. Lopardo is in, said a State Street spokesman. Mr. Carter "allows the unit to be compensated in a way that keeps them competitive."
Mr. Virtue and Mr. Lopardo are seen as examples of the direction that executive compensation is taking.
"You are introducing a business with greater uncertainty and greater skill requirements, and in that environment it's not unreasonable to expect that compensation would be higher," Mr. Carusone said.