There is CEO pay. Then there is private equity CEO pay.
When large corporations disclose how much money their top executives make each year, the companies list salary, bonuses and, in many cases, stock options or grants. It can add up to tens of millions of dollars.
Top executives at the publicly traded private equity firms get all that, and a whole lot more. They often pocket money from a variety of additional sources that can total hundreds of millions of dollars a year.
To determine just how much money private equity titans receive, The New York Times asked Equilar, a board and executive data provider, to compile information from the six largest publicly traded private equity firms. The Times then analyzed the data, which covered the period from 2012-15, and verified Equilar’s findings with the firms themselves.
The joint study captured the full picture of what the executives made based on their affiliation with their firms, including dividends on the stock they own and some extra benefits specific to private equity. Many of the earnings are not traditional compensation, but it’s money in their pockets nonetheless.
In the last two years, Stephen A. Schwarzman, chief executive and co-founder of the Blackstone Group, received the largest sum. In 2015, he collected just less than $800 million, up from $689 million the year before. Of that amount, only $350,000 was his annual salary. He received no bonus.
But you don’t need to be Schwarzman to earn huge sums at Blackstone, arguably the industry’s most successful firm. Hamilton E. James, Blackstone’s president, received $233 million in 2015, while Blackstone’s real estate chief, Jonathan D. Gray, earned $249 million.
Other prominent firms have produced big payouts as well. In 2013, the biggest winner was Leon Black, head of Apollo Global Management, who received about $543 million. In 2015, Henry R. Kravis and George R. Roberts, co-heads of Kohlberg Kravis Roberts & Company, collected a combined $356 million.
To put these huge numbers in perspective, The Times also asked Equilar to pull data on the annual payouts to CEOs of the nation’s largest banks and technology companies.
Using the same method it used for private equity, Equilar collected data from the nation’s largest banks and the technology giants. As a final undertaking, Equilar scanned its broader database of companies to search for the largest executive payouts from 2015.
The conclusion of the study was striking: Private equity has the best-paid executives of any major U.S. industry.
The Times based that conclusion on several findings. For one thing, of the top 15 executive payouts from 2015, 10 were in private equity. In private equity alone, there were eight executives who reaped more than $100 million. From every other industry tracked by Equilar, there were only five executives who reached such heights.
Richer Than Tech, Banking
For all the populist outrage that banks have faced over compensation, their executives make just a fraction of what private equity chiefs do. Median pay among the top-ranking private equity executives in the joint study was $138 million in 2015; for bankers, that number was $23 million. And not all of the bank compensation is guaranteed.
Private equity firms note that, unlike banks, many of the top executives actually founded their firms. This is why The Times also asked Equilar to collect data from tech firms, since they, too, often have founders at the helm.
Indeed, Lawrence Ellison, co-founder, executive chairman and former chief executive of Oracle, collected the second largest payout in the joint study. He received $631 million last year, much of it in dividends on his stock, second only to Schwarzman, who also made much of his money from dividends.
And yet, overall, the payouts to tech executives are still far short of those in private equity.
Mark Zuckerberg of Facebook was paid a salary of $1 last year and received personal security and aircraft perks valued at around $5 million.
Of course, because Facebook’s stock price is significantly higher than Blackstone’s or Apollo’s, Zuckerberg is worth more, at roughly $49 billion, than Schwarzman and Black (who are billionaires) combined. (Stock sales and unrealized equity gains from increase in stock price weren’t included in this study.) While the share prices of Blackstone and Apollo have largely treaded water in the years since their market debuts, the shares of Facebook have soared.
Doing Nicely, the Private Equity Way
In addition to conventional salary and executive compensation, private equity chieftains make their money in three ways:
First, private equity firms typically issue dividend-paying shares to their investors. And since the executives are often huge holders of the stock, they collect dividends, or distributions on their partnership shares, on a quarterly basis.
The private equity firms argue that their executives could retire to a beach and earn these same dividends. Of course, very few do. Most private equity executives sell their shares upon leaving their firms. And at some shops, executives collect a higher dividend than is awarded to ordinary shareholders.
Second, the executives invest in their firms’ own funds and get to keep their profits. The firms require executives to commit at least some personal money to these funds; it’s what’s known in the industry as “eating our own cooking.” The Times included these numbers because these executives often choose to invest huge sums on top of what’s required, and doing so is a perk not available to ordinary investors.
Finally, there is what’s known as carried interest, essentially the profits earned on each of the firm’s deals. The top executives of private equity firms often earn a cut of these profits. An executive can either take a direct cut of the so-called carry pool or earn those quarterly dividends or distributions that are largely composed of carried interest. The more carried interest earned, the higher the dividend.
Carried interest is taxed at a long-term capital-gains rate that is roughly half the ordinary income rate for the nation’s highest earners. Victor Fleischer, a former corporate tax attorney and a former contributor to The New York Times, has estimated that taxing carried interest at the higher rate would result in about $180 billion in tax savings over 10 years.
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It is worth noting some limitations of the data. First, given that Equilar pulled data from the last few years, the study is intended as a snapshot, not a definitive accounting of net worth. Still, the methodology treated each executive consistently and calculated the entirety of the payouts.
Furthermore, The Times and Equilar focused on publicly traded companies with more than $1 billion in revenue. Privately held corporations need not report compensation information. And so, while private equity earned the biggest payouts among the largest publicly traded industries, there could be private companies (or small public ones) doling out even bigger paydays.
Some hedge fund executives, for example, routinely take home $1 billion or more annually, according to some published estimates, but these firms are not publicly traded.
Similarly, of the thousands of private equity firms that exist, only a half dozen or so are publicly traded. As such, a private equity executive not captured within this data may make even more.
Even the publicly traded private equity firms do not disclose all the same information, particularly when it comes to profits on their own funds. The publicly traded Carlyle Group, for example, no longer discloses this information. Ares Management, however, includes both the amount of personal capital invested and the profits made on those investments.