Executives in the card industry continued to pull down hefty salaries in 2003. But there are signs that boards of directors are beginning to scale back compensation packages.
If 2003 is any example, the days of super-rich compensation packages for card- industry executives are on the wane.
To be sure, some executives last year saw triple-digit increases or more in their income. But a significant number also saw sharp drops in compensation. And industry experts say there likely will be more pressure on executive pay in the future.
Continued consolidation in the industry-including the merger of J.P. Morgan Chase & Co. and Bank One Corp.-is leaving many executives in search of new jobs. For the top executives, that can mean rich packages. But in the case of lower-level executive positions, it likely will lead to lower pay, observers say.
What's more, in the post-Enron Corp. era, take-charge investors are pressuring boards of directors to hold the line on executive compensation. No longer are shareholders content to watch executives waltz away with fortunes when companies' bottom lines are suffering. Boards "don't want to be seen as putting together fancy packages and spicing things up at higher levels while tens of thousands of people are being given pink slips," says Daina Di Veto, managing director of Lynden, Ontario-based Card Resource Group.
Still, card executives aren't likely to end up in the poorhouse. Median total pay for industry executives last year rose 9.5% to $2.4 million from $2.2 million in 2002.
For card-industry chief executives, there were even sweeter deals. They saw median compensation of $4.8 million in 2003, double 2002's median income of $2.4 million.
Compensation includes salaries, bonuses, stocks and options, long-term incentives and other pay. CCM based its calculations on executives of publicly held companies for whom both 2002 and 2003 compensation data were available. Data were provided by Standard & Poor's ExecuComp, a service that tracks pay for top executives by pulling figures from proxy statements of publicly held companies. Total compensation was calculated based on the value of options the executives exercised.
Not all executives saw increases. Of the 43 executives reporting two years of data, 19 saw a drop in total pay in 2003.
Whether a CEO worked on the issuing or acquiring side of the industry played a role in pay. Total compensation for the chief executives of issuers dropped 26.9% to $7.6 million from $10.4 million in 2002. But for acquirer/vendor CEOs, median total compensation soared 227% to $4.8 million, up from $1.5 million a year earlier.
Card executives' 2003 median salary totaled $475,000, up 3.3% from $460,000 in 2002. The median bonus rose 12.3% to $525,000 from $467,600 in 2002.
Bonus and salary accounted for a significant, though smaller, portion of executive pay packages in 2003. Overall, median salary and bonus were 36.4% of compensation, down 8.2% from 39.6% in 2002.
For chief executives, median salary increased 24.7% to $748,460 from $600,000, while the median bonus dropped 2.7% to $664,320 from $683,000 in 2002. Salary and bonus combined accounted for 36.4% of compensation, down 8.7% from 39.8% in 2002.
The card-industry figures compare to a median salary and bonus of $2.1 million, up 7.2% from 2002, for 350 CEOs, according to a Mercer Human Resource Consulting/Wall Street Journal survey. Mercer also found that CEOs' bonuses grew 6.7% to a median of $1.1 million.
Total compensation for payment executives ranged from a low of $67,540 for Richard D. Fairbank, chairman and CEO at Capital One Financial Corp., to a high of $147.2 million for Nigel W. Morris, Capital One's former president and COO. Morris, who in April stepped down from his position at Capital One, also scored the biggest percentage increase-154,914%. That's in contrast to 2002, when he saw his compensation drop by nearly 100%.
Both Morris and Fairbank have drawn their compensation primarily in the form of stock options since 1997.
Indeed, restricted stock and options are an important part of many executives' pay. Seven CEOs in 2003 received restricted stock awards ranging from $226,400 to $27.3 million.
Coming in a distant second in terms of total compensation was Charles M. Cawley, who retired as chief executive of MBNA Corp. on Dec. 30. In 2003, he saw total pay of $35.3 million. However, that was a 28.1% decrease from his total pay of $49.1 million in 2002. Cawley will retain ties with the MBNA as a "senior adviser" until August 2005, with annual pay of $2.5 million.
Cawley reportedly left MBNA after a battle with its board over compensation for senior executives. Cawley's hefty pay and perks were the subject of a lengthy article in The New York Times March 7.
Indeed, MBNA's executive compensation packages were at the heart of a resolution-proposed by a major shareholder-to make two-thirds of the board independent of the issuer.
The investor, the Teachers Insurance and Annuity Association-College Retirement Equities Fund (TIAA-CREF), contends that a majority of directors have personal or business ties to prior and current senior management that resulted in actions "contrary to the best interests of shareholders." TIAA-CREFF owns about 17 million MBNA shares.
Those actions included awards of executive stock compensation, post-retirement benefits and spousal benefits-including personal use of company airplanes-that are "egregious, in excess of corporate norms, and an inappropriate use of shareholder assets," TIAA-CREF said in an April 12 letter to fellow shareholders.
Fifty-six percent of MBNA's shareholders last month passed the TIAA-CREF resolution, which is not binding on the board. MBNA on April 30 appointed independent directors to its nine-member board to fill vacancies left by Norma Lerner, widow of MBNA co-founder Alfred Lerner, and Michael Rosenthal, former associate dean of Columbia University. And a spokesperson says MBNA may add two more seats to the board, filling them with independent board members.
In its proxy filed March 15 with the Securities and Exchange Commission, MBNA's compensation committee reported that based on recommendations from an independent compensation consultant, it "determined that reductions in the levels of executive compensation would be appropriate." As a result, the committee reduced bonuses and long-term executive compensation for all senior executives, except for Cawley, for 2003.
In addition, the committee this year will make more cuts, including freezing salaries for senior executives, reducing bonuses and total equity awards, and limiting restricted stock awards.
Up until six months ago, the job market at the major issuers "was totally dead," says Nancy Griffiths, president of The Griffiths Group, a New York-based executive search firm.
Di Veto, too, has seen a surge in hiring activity over the last six months, with people reporting multiple offers. Di Veto's company specializes in placing executives at the senior vice president level or below.
But unlike in the past, those multiple offers aren't translating into richer packages. "It's as if (companies) are saying, 'yes, we need you, and yes, there are other people looking for you, but we cannot and will not increase this package,'" she says.
That's because the mergers of giants J.P. Morgan Chase/Bank One and Bank of America/Fleet Financial will throw up to 24,000 people into the marketplace, Di Veto says. Once that happens, "there's not going to be any multiple offers," she says. "It's going to have a very depressing impact on salaries because there's no way that the industry can or would want to absorb that many people."
But the story is different for some lucky executives of the major issuers, Griffiths says. As issuers merge, many chief executives want to take their management teams with them. That often means paying a premium.
"The salaries really have astounded me-how high they are and how high the bonuses are," Griffiths says. She adds that she's also amazed at how much major issuers are willing to give executives in stock and options.
And there is hope for executives who ultimately are squeezed out of the U.S. credit card industry. Payment executives are finding their expertise is in demand in start-up companies, and in niche and overseas markets. These new markets "basically are driven by knowledge or intellectual capital strategies, which is what drove the credit card industry," says Susan Allard, president of Allard Associates Inc., a San Francisco-based executive search firm.
"There's definitely more demand than supply," Allard says. "It's just that the supply is coming out of the big credit card issuers and the demand is in all the new markets."
Di Veto agrees. She has advised clients to "get out of the (credit card) issuing side" and move into other parts of the payments world that are still growing, such as debit cards, electronic funds transfer, prepaid cards or processing.
One specialty commanding top dollar is credit-risk management, Griffiths says. "I'm seeing a minimum of base salaries of $200,000, and on top of that, bonuses that go anywhere from 40% to 150% of base" for senior vice presidents and executive vice presidents, she says.
But for most card execs, the golden age of compensation may never return.
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