Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Buyout barons ride market to $2.6 billion payday

Fred Froese | E+| Getty Images

Think bank executives bring home the bacon? Think again.

The five chief executives running Wall Street's largest banks will rake in just 3 percent of what their peers at private equity firms stand to make from 2013.

Collectively, the nine founders and chiefs of the publicly traded private equity firms saw their compensation rise to $2.6 billion in 2013, as healthy dividend and profit payouts were matched by a roaring stock market friendly to taking their companies public.

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Leading the pack is Leon Black, founder and chief executive of the Apollo Group. Black made an eye-popping $546.3 million last year, more than double what he earned in 2012, according to regulatory filings. His gains came alongside those of Apollo shareholders: Black earned $369 million from the annual dividends on more than 92 million Apollo shares he owns.

Apollo also sold new shares for the first time since its 2012 IPO, which created a windfall for Apollo co-founders Josh Harris (who earned $396.7 million) and Marc Rowan ($365.8 million).

Most private equity "compensation" doesn't come from a base salary, but a wide range of assets: Founders not only have shares they own and may sell, they also have personal stakes in individual funds, on which they earn a "carry," or a sizeable portion of the fund's profits.

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Roughly $22 million of Blackstone Group Chairman Steve Schwarzman's $375 million payday came from carried interest; Schwarzman, too, reaped the most of earnings through dividend payouts. As did co-founders of the Carlyle Group - Bill Conway, Daniel D'Aniello and David Rubenstein - who each got some $93 million in dividends and will split total earnings of roughly $750 million. (To boot, Carlyle announced Monday night that Conway and D'Aniello would look to sell an additional $43 million in CG shares apiece.)

George Roberts and Henry Kravis, the Oklahoma natives and cousins that started Kohlberg, Kravis & Roberts, will take home more than $160 million each - the most since the firm went public.

On average, private equity compensation had been estimated to rise up to 10 percent, according to compensation consultancy Johnson & Associates - healthy gains, but hardly the wealth creation enjoyed by the elite founding few.

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Private equity has always been a lucrative alternative to Wall Street: Many entry-level analysts begin interviewing for jobs at the top firms almost immediately after starting at the banks, seeking the higher pay and better hours.

After the financial crisis, Wall Street compensation became fuel for public debate, with everyday citizens balking at multi-million dollar paydays for executives whose companies received government bailouts. In 2012, Citigroup shareholders voted against then-CEO Vikram Pandit receiving a $15 million pay package for the prior fiscal year.

Pay for bulge-bracket bank executives has risen steadily since then, and mostly in lock-step with the companies' profit gains and share price increases.

By comparison, Wall Street executives stand to make less than $100 million, after their cash bonuses are disclosed in annual proxies. It's a debatable - but David - of a number, compared to the Goliaths across the Street.