Asset Managers Get Big Paydays While Wall Street Cuts Back

Regulations and volatile financial markets are hitting many Wall Street chief executives hard in their wallets. But the CEOs of three of the largest asset-management firms in the U.S. have escaped the damage.

Total compensation for chief executives at Federated Investors Inc., Franklin Resources Inc. and T. Rowe Price Group Inc. rose 28% to a combined $22.4 million in 2011, according to securities filings. All three got a boost from incentive-based pay, in contrast to smaller bonuses atop many banks and securities firms.

Federated, Franklin and T. Rowe Price are among the seven largest publicly traded asset managers in the U.S. Some compensation experts are predicting similar increases when rivals such as Invesco Ltd. and State Street Corp. disclose pay details in the next several weeks. State Street and Invesco declined to comment.

Asset management is a diverse industry with diverse players. The industry leader, BlackRock Inc., operates much like an investment bank, and its CEO saw his total compensation fall. In addition, company-specific issues can affect compensation. CEO compensation at another large asset manager, Janus Capital Group Inc., fell after the executive got a big compensation package in 2010.

But for Federated, Franklin and T. Rowe Price, the differences in their compensation and that of their investment-banking counterparts are a reminder that there are advantages to avoiding too much volatility. Asset-management firms make their money primarily by managing mutual funds, where fees have been steady and asset levels generally stable despite last year's topsy-turvy markets.

The same uncertainty last year slammed bonuses for traders and investment bankers, who get a larger chunk of compensation from variable-based pay than asset-management employees do. Banks and securities firms also are being squeezed more by new rules.

As a result, T. Rowe Price's president and chief executive, James A.C. Kennedy, saw his total compensation climb 11% in 2011 to $7.9 million from $7.1 million in 2010.

The increase came from bigger stock-option awards and other incentive-based compensation. The company left Kennedy's salary at $350,000 a year.

A company spokesman said Kennedy got a "modest increase in total compensation" because the firm "financially did reasonably well." The Baltimore company's profit rose 15%. T. Rowe Price also considered the company's "strong financial position" under Kennedy, including no debt.

Bonuses for rank-and-file employees at asset and wealth-management firms, including privately held companies, were expected to increase about 5% for 2011, according to Johnson Associates Inc., a compensation consultant in New York. Such bonuses were expected to fall 20% to 40% at the biggest U.S. commercial and investment banks.

Not every asset manager is sending the CEO home with more than it did in 2010.

Janus, the 10th-largest publicly traded asset manager, reported in its proxy that CEO Richard M. Weil earned $6.2 million in salary, bonus and stock in 2011 after earning $10.3 million in 2010, his first year at the company. He also earned a $10 million sign-on bonus that year, prompting shareholders in 2011 to vote down management's compensation plan. The company's net income fell 11% in 2011 to $142.9 million, in part because its mutual-fund lineup is weighted heavily toward stocks.

And on Friday, BlackRock said total compensation for Chairman and Chief Executive Laurence D. Fink shrank 8% to $21.9 million. Fink's bonus fell 20% to $8.1 million. BlackRock's businesses include private-equity investing and hedge funds, which face higher capital requirements and will be forced to change how they trade some securities.

There are few signs that asset managers with higher overall pay or bonuses will face a backlash at coming shareholder meetings, like Janus saw last year.

While some investors might be concerned about the increases, "there really haven't been huge payouts" compared with big banks over the years, said Robert McCormick, chief policy officer of Glass, Lewis & Co., a shareholder adviser.

Franklin Resources, which operates Franklin Templeton Investments, said in a securities filing that Chief Executive Gregory E. Johnson had total compensation of $9.9 million in the fiscal year ended Sept. 30, up 47% from 2010.

Johnson's incentive bonus was unchanged at $2.65 million, but his stock-based award jumped to $6.35 million from $2.6 million. Holly Gibson Brady, a spokeswoman for Franklin Resources, said fiscal 2011 was a "very strong year." Franklin's profit rose 33%.

At Federated, of Pittsburgh, President and CEO J. Christopher Donahue had total compensation of $4.6 million in 2011, up 28% from 2010, according to a securities filing. The biggest jolt came from a $1.9 million stock award, up 64% from a year earlier. Federated's net income fell 16% to $151 million, largely because of fee changes to its money-market funds, but the company set his pay based on an operating-profit target of $65 million. Federated had an operating profit of $176 million.

Francine McKenzie, a managing director at Johnson Associates, said it is common for companies to set bonus targets based on operating profit.

In contrast, Goldman Sachs Group Inc. Chairman and Chief Executive Lloyd C. Blankfein's stock bonus was cut for the first time since the financial crisis. His cash bonus hasn't been disclosed yet.

Goldman has said Blankfein would make $2 million in salary for 2011, up from $600,000 for 2010.

At Morgan Stanley, total compensation for Chief Executive James Gorman fell by about 25% last year, according to the company. Exact figures haven't been disclosed.

Securities firms are facing potential regulatory curbs such as the Volcker rule, which would limit proprietary trading. At asset managers, the biggest regulatory threat is a Securities and Exchange Commission plan to tighten rules on money-market mutual funds.

This story first appeared on WSJ.com.