Payments industry executives’ average total compensation in 2009 declined slightly as certain companies endured the shocks of the economic downturn and others remained relatively unaffected. But the components of compensation changed to reflect more long-term incentives and accountability as company boards increased their scrutiny of executive-pay packages, experts say.
Compensation activity varied widely last year among payments companies.
Discover Financial Services’ executives experienced across-the-board compensation cuts in 2009, partly because of bonus restrictions imposed by the Troubled Asset Relief Program. Top executives at MasterCard Worldwide also saw modest decreases in their total compensation because of the economic downturn, as did executives at Total Systems Services Inc. and eBay Inc.
Executives at certain other payment companies, such as Visa Inc., whose profits fared relatively well, saw healthy increases in their compensation last year.
For the payment executives PaymentsSource reviewed, average total compensation last year fell 14%, to $7 million from $8.14 million in 2008. Average salaries for top executives rose 41.3%, to $948,260 from $671,012, while average bonuses increased 44%, to $722,537 from $501,757.
Stock awards, options and other compensation components in general fell in 2009 as many corporations restructured their executive-pay plans around longer-term incentives.
PaymentsSource compiled the data from the annual proxy statements 12 public, U.S.-based payments companies filed with the U.S. Securities and Exchange Commission.
Scrutiny of top executives’ pay at publicly held companies intensified last year, especially within the financial-services sector. Investors and pundits joined the chorus claiming many financial-services company executives did not deserve the millions they received during a recession some believe banks helped to spark.
Banks receiving federal funds during the liquidity crisis that began in fall 2008 were subject to compensation limits restricting executives to receiving only a base salary and restricted stock. Most banks repaid those funds before becoming subject to executive-pay restrictions, but that did not ease the pressure for greater accountability in executive compensation.
“The public and investors are fed up with seeing excessive salaries for financial-services executives rising at companies that received government money, and that is likely to remain a very big focus for society,” says Mitch Feldman, president of A.E. Feldman Associates Inc., a Great Neck, N.Y.-based executive-recruitment firm.
Corporate boards have responded by treading more carefully in structuring top-executive pay, attempting to tie compensation more closely to performance and risk.
American Express Co. in February announced it is shifting compensation for its top executives to higher base salaries and lower short-term incentive awards, combined with more long-term incentives and stock-based awards.
This type of executive-pay structure is on the rise, says Jim Moniz, a compensation consultant with Northeast VisionLink, a Braintree, Mass.-based compensation-consulting firm. “There are not too many examples yet to point to, but the goal is becoming, ‘How can we give these guys incentives so they will stick around and deliver results over the long term?’”
‘Say On Pay’
Among investors, the movement toward “say-on-pay” initiatives giving stockholders the right to approve executive-pay packages continues to gain ground as more corporations approve such resolutions.
And after a lull following more than a year of recession and industry uncertainty, the pace of top payments-executive recruitment is increasing again, as companies begin looking to hire senior managers with deep credentials in international operations and payments-technology innovation, experts say.
“We saw a real slowdown in payments-executive hiring in 2008 and 2009, as companies held off on making decisions while they waited to see where the economy was heading,” Curt Hensley, CEO of Scottsdale, Ariz.-based Impact Payments Recruiting, tells PaymentsSource. During the depths of the recession through mid-2009, companies tended to fill vacancies by turning to existing employees and by promoting from within. But during the first quarter of this year, executive-recruiting requests for top executives resumed, Hensley says.
“Within the last six months, we’ve seen senior-level executive hiring rebound,” he says.
Hensley would not disclose which payment companies are seeking fresh talent but notes that mobile payments’ growth potential is fueling many discussions. “The payments and telecom industries are interested in one another. Each side has valuable expertise the other side could use, and we may see that playing out in some senior-level hires,” he says.
One example of this trend was Visa Inc.’s decision in February to hire Bill Gajda, chief commercial officer at global wireless trade group GSMA, as head of its mobile-payment operations. Gajda previously spent seven years coordinating mobile telecommunication standards between 219 countries and 800 different telco operators. Visa’s move illustrates the type of cross-industry talent searches payment companies are pursuing, Hensley says.
Similarly, MasterCard’s hiring earlier this year of longtime Citigroup Inc. executive Ajay Banga as the No. 2 payment network’s new CEO, replacing retiring CEO Joseph Selander, was another example of “inspired strategy,” Hensley says. Banga, 50, spent more than a dozen years serving in various Citi executive posts around the world, where he focused on diverse product channels, including cards and brand marketing. Citi also is MasterCard’s largest card issuer worldwide.
Banga’s hiring “shows the kind of smart thinking payments companies must use as global competition and new technology developments speed up in the payments industry,” Hensley says. “MasterCard got someone with broad industry knowledge and much-needed international experience, and his hiring may help to cement an alliance. It works on every level.”
Venture Capital
Besides mobile payments, the rise of alternative payments and new technologies is fueling interest from deep-pocketed venture capitalists, which are hunting for executives with innovation skills and payments knowledge, Feldman says. “Technology is driving a lot of the executive searches we see in the payments industry, as companies search for people who can turn ideas into successful products.”
But payments-industry jobs with the greatest allure most likely are to be more traditional roles at large companies focused on core banking and payments products, says Gustavo Dolfino, a senior managing director at recruiting firm Accretive Solutions Inc. “Commercial banking and payments remain a strong growth area that is attracting top executives,” he says, noting “people with the best credentials are not likely to move to a payments startup, especially since many of these new companies are not offering [salary] guarantees.”
Risk management, another basic payments-industry skill, also is driving recruitment efforts, Feldman says. “Credit risk management is a growing area for most payments companies, and its science is constantly changing,” he says.
Stock Performance
Companies’ stock performances last year and other incentives contributed to top executives’ 2009 compensation packages.
Wells Fargo & Co. chief executive John Stumpf last year earned $21.3 million in total compensation, 137% more than the $9 million he brought home in 2008, before Wells acquired Wachovia Corp. late that year.
AmEx Chairman and CEO Kenneth Chenault brought home $17.4 million in total compensation. But his pay package was 39.6% less than his total pay of $28.8 million in 2008. Chenault’s 2009 earnings included $5.3 million in cash payments from nonequity incentives, a $5.1 million cash bonus, $4 million in options and a salary of $1.2 million.
Visa Chairman and CEO Joseph W. Saunders earned total compensation of $13.74 million last year, up 36% from $10.1 million in 2008. Other top Visa executives also notched pay gains last year. John Partridge, chief operating officer, brought home $7.95 million, up 17.4% from $6.77 million in 2008, and Byron Pollitt, chief financial officer, earned $4.63 million, up 35% from $3.43 million. Outgoing Visa president John C. Morris’ 2009 exit package totaled $18.3 million, up 275% from $4.88 million in total compensation the previous year.
MasterCard’s Banga earned $11.3 million in 2009 while serving as president and chief operating officer during his first year at the company. MasterCard's Selander, who retires Dec. 31, last year took home $10.33 million in total compensation, just shy of the $10.36 million he earned in 2008. And Martina Hund-Mejean, chief financial officer, last year earned total compensation of $2.27 million, down 36.2% from $3.56 million
John J. Donahoe, eBay Inc. president and CEO, earned $10.13 million last year, 57.8% less than the $24 million he earned in 2008, while his senior-level colleagues absorbed compensation-package reductions of more than 50% each as the company’s overall earnings declined. EBay’s PayPal unit was the exception, with Scott Thompson, PayPal president, earning $3.22 million, up 22.9% from $2.62 million in 2008.
Discover’s top executives all took home less pay last year. David Nelms, chairman and CEO, earned $5.68 million, down 31.5% from $8.29 million in 2008. Roger C. Hochschild, president and chief operating officer, earned $4.73 million, down 31.6% from $6.92 million.
Earlier this year Discover announced it had raised the base salaries of top executives for 2010 and switched bonuses from variable amounts to fixed amounts based on specific goals.
Capital One Financial Corp. CEO Richard Fairbank took home total pay of $6.1 million last year, nearly all of it from restricted stock and options awards. That figure was sharply higher than the $68,344 he received the previous year, having received the bulk of his 2008 pay in late 2007. Fairbank received no salary or bonus last year.
JPMorgan Chase & Co. CEO Jamie Dimon took home just $1.3 million in total compensation last year, reflecting his decision to forego a 2008 bonus that would have been paid last year.
Executive pay is in flux as corporations alter compensation programs to include more long-term incentives. If pay packages more closely reflect performance over the long run, it may help diffuse the rising public skepticism about how much banking executives earn.
