After several years of rising pay, card execs are beginning to see drastic drops in compensation as the sluggish economy takes its toll on share prices and bottom lines.
The year 2002 proved to be a rough, albeit still profitable, year for most credit card executives. A struggling economy, rising bad debt and a weak stock market all conspired to chip away at card execs' compensation packages. Executives who once saw pay increases in the double digits now are experiencing pay cuts of the same magnitude. It is, as one headhunter says, a "rude awakening."
Mean total compensation for card-industry chief executives rose 8% to $20.4 million (chart, page 42). But median compensation for CEOs of card issuers plummeted 59% to $9.8 million, from $23.8 million in 2001. However, those same CEOs did see a 16.5% increase in median salary and bonus to $3.8 million in 2002.
The story was different for CEOs of acquirers and processors, whose median income soared 153% to $3.5 million last year from $1.4 million. But they saw only a 2% increase in median salary and bonus, rising to $939,000 last year from $920,000 in 2001.
Compensation includes salaries, bonuses, stocks and options, long-term incentives and other pay. CCM based its calculations on executives for whom both 2001 and 2002 compensation data were available. Data were provided by Standard & Poor's ExecuComp and Equilar Inc., services that track pay for top executives by pulling figures from proxy statements of publicly held companies.
Total compensation at most companies cited was calculated on the value of options the executives exercised. Of the 41 executives reporting two years of data, 28 saw a drop in compensation.
The highest paid executive in 2002 was Alfred Lerner, chairman and CEO of MBNA Corp., who died in October. His total compensation shot up 599% to $195 million in 2002 from $27.9 million in 2001.
Lerner's successor as chief executive, Charles M. Cawley, scored the second-largest pay in 2002, $49.1 million, up 11% from $44.3 million a year earlier. MBNA's net income rose 4% in 2002, but its stock fell about 18% as the issuer, which caters to a higher-quality customer, got caught up in investor concerns about credit quality emanating from the subprime sector.
The payment executive seeing the largest increase was Peter J. Knight, chairman and CEO of CheckFree Corp., whose 2002 compensation totaled $7.9 million, up 1,032% from $697,000 at year-end 2001.
Experiencing the largest decreases were Capital One Financial Corp. CEO Richard D. Fairbank and President Nigel W. Morris, who plans to leave the company at year-end. Both saw compensation drop by nearly 100%. Fairbank and Morris-who were the highest earners in 2001 at $142.2 million and $89.5 million, respectively-since 1997 have drawn their compensation only in the form of stock options. Despite a 40% increase in net income last year, Capital One's stock ended the year down about 30%. Investors dumped the stock after the issuer disclosed that its portfolio had a higher-than-expected subprime component, but it has been recovering smartly this year.
Part of the decrease in pay can be traced to a growing pool of executives left jobless as the card industry continued to consolidate. Plus, some subprime issuers, including NextCard Inc., went under while others, such as Metris Companies Inc., experienced major bad-debt problems.
"There are more people available today on the market because of companies like Metris just about imploding and laying everyone off," says Susan Allard, chief executive of San Francisco-based executive search firm Allard Associates Inc.
Over the past few years subprime executives were paid "very handsomely" for bringing in cardholders to their "profit machines," says Daina Di Veto, managing director of Lynden, Ontario-based Card Resource Group, an executive recruiter. But that changed when the sluggish economy sent chargeoff rates skyrocketing. As a result, some high-profile victims, such as former Metris Chairman and CEO Ronald N. Zebeck, found themselves unemployed. Despite his ill fortunes, Zebeck still ranked among the top 30 highest-paid card executives, bringing home compensation of $2.2 million last year.
The make-up of compensation packages sought by executives also is changing. Stock, once a highly prized portion of pay packages, has fallen out of favor as executives watched falling share prices wipe out their earnings. "Candidates are not as excited about the option piece of the package," says Di Veto.
Bonuses remain popular with compensation committees, although in the past, many were tied to an executive's performance rather than that of the company. "Bonuses are still important, but not like they were," says Kathryn Trott, president of San Francisco-based executive search firm, e-Trott Inc. "Even if you have your best year ever, if your company doesn't perform well you can be left out of the bonus game."
One effect of the economic downturn is that it has discouraged many executives from accepting new jobs, Allard says. "We are finding candidates are a lot more conservative about making a move. 'The world is so uncertain. Golly, why would I leave my safe job,'" she says.
Adds Di Veto: "It's just sort of the devil you know is better than the devil you don't. In this market, people are very reluctant to make a move."
Indeed, many candidates considering a job change are asking for ironclad employment contracts. "People are saying they'll leave only with a three-year contract or agreement," Di Veto says.
This reluctance to move makes executives much more open to counter offers from their current employers, Di Veto adds. "The counter offers don't need to be as large to get them to change their minds and decide to stay where they are," she says.
One area showing strong demand for experienced card execs is risk management and collections," says Daniel DeFrancesco, partner at New York-based executive search firm, The Griffiths Group. That's because issuers want to "squeeze as much profit as they can out of what they've got," he says. "In down times, that's usually where the focus is."
Meanwhile, there is less call for executives with marketing experience, according to Di Veto. "We've seen a huge slump in marketing positions across the board," she says. "Where we've been busy is in the decision-management areas-risk management, credit policy and finance."
Di Veto notes that marketing is "always a cost-heavy function ... whereas some of the other groups are expensive but they're necessary costs."
The travails of the credit card industry are likely to continue to take a toll on executive compensation for some time to come. Meanwhile, card execs may have to set less lofty goals for themselves.
Authoritative analysis and perspective for every segment of the payments industry
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