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Is Lloyd Blankfein Overpaid?

Pre-beard days

Compensation for chief executives at the 20 largest financial companies in North America rose 7.7% last year. Goldman Sachs CEO Lloyd Blankfein took home $26 million, a 73% pay hike from the previous year. Considering Goldman’s impressive comeback year in 2012, is he overpaid? A funky algorithm used by Bloomberg says yes.

Bloomberg Markets magazine looked at three key measures to evaluate each firm’s level of success in 2012: share performance, return on equity and asset scores. Each bank’s totals were compared to that of their peers along with the compensation doled out to their CEOs.

Blankfein won the silver medal, labeled as the second most overpaid CEO, finishing behind Richard Fairbank, the chief of Capital One, who made less than Blankfein – taking home $17.5 million – but whose firm didn’t perform as well as Goldman Sachs.

Looking at the numbers, Goldman ranked highly in assets and share performance, finishing fourth in both categories, but its 10.7% return on equity dragged the firm down.

Scrapping the algorithm, is Blankfein overpaid? Rational arguments can be made on both sides. As Bloomberg states, Goldman slashed compensation as a proportion of revenue from 42% in 2011 to 38% in 2012 while increasing pay for its CEO. What they don’t mention is that Goldman employees actually took home more money, earning, on average, $399,506 in 2012, up from $367,057 in 2011. Goldman simply made more money with fewer people, hence the percentage drop.

Then you need to look at the year Goldman had compared to its peers. Unlike in recent years, Goldman didn’t make front-page news. J.P. Morgan, Bank of American, RBS and others stole the limelight with scandals and litigation while Goldman remained relatively clean. Plus, the bank made much of its hay in the second half of 2012, ending the year with optimism.

And if you’re not buying that argument, Blankfein made roughly the same as Barclays’ former investment banking head Rich Ricci, who was a walking scandal.

The Case for Consulting Over Banking (eFinancialCareers)

With the playing field no longer slanted in the direction of The Street, many of the best and brightest are choosing the consulting route.

Fixed Income Shrinking (WSJ)

Morgan Stanley plans to take the knife to its underperforming fixed income unit. The firm is dramatically lowering its revenue targets. No word yet on potential headcount reductions, but the bank has already cut much of the fat.

Welcome to the Private Equity Sector (HuffPo)

What does a former four-star general do after walking away from the army due to an extramarital affair? He packs his bags and heads to Wall Street. Former General David Petraeus has accepted a job at private equity firm KKR.

A Nice Hourly Wage (Bloomberg)

It sure pays to be on the board of directors. The average salary for directors at Standard & Poor’s 500 Index companies was $251,000 last year. The average yearly workload is around 250 hours. Directors who made the least are on Berkshire Hathaway’s board. They take home just $3,800.

Darker Side of the Pond (NY Times)

Roughly one in three London bankers were deprived of a bonus last year, up from 18% the year before and the lowest level in the survey’s five-year history.

UBS Opens the Purse Strings (Bloomberg)

Apparently sick of watching talent walk out the door, UBS is planning to increase salaries for investment bankers by an average of 9%. Some will see as big as a 30% jump.

A Road Less Traveled (NY Times)

Meet the daughter of Morgan Stanley Chief Executive James Gorman. She wants to be a rock star. I’ve heard worse.

Buzz Around the Office

Prancercise the Demons (MSN)

Meet the most humorous, and also terrifying, exercise routine to hit the Web. It’s called Prancercise,” and it’s exactly what you’d think. Women prancing like horses…with ankle weights.

List of the Day: Switching Careers

If you are thinking about switching career paths, do this before handing in your walking papers.

  1. Volunteer in the new industry to test the waters.
  2. Network with people in the new field. Ask questions.
  3. Understand the salary hit you’ll be taking, and for how long.

(Source: The Daily Muse)

AUTHORBeecher Tuttle US Editor

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