Breaking Views

CEOs: It's not just about the money

It sure does help though. Still, according to a new study, the size of their paychecks is just one of many rewards.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Antony Currie, breakingviews.com

(breakingviews.com) -- How important is pay to the average multi-millionaire investment bank executive?

Sure, it's right up there on the list of must-haves. And the ability to sell stock holdings they have accumulated might sometimes fuel excessive risk-taking, as a new Harvard study suggests. But money is hardly the only thing on Wall Street bosses' minds.

If it were, many of those who were on the bridge -- or playing bridge, in the case of Bear Stearns' Jimmy Cayne and Warren Spector -- would have long since left the business. John Mack, for example, could have retired and lived more than comfortably after leaving Morgan Stanley (MS, Fortune 500) in 2001. Yet he went on to run Credit Suisse (CS) and then returned to head Morgan Stanley.

The fact is, executives like the challenge, the power, the prestige and the battle to best their rivals -- and the amount they're paid is just one way that is expressed. And during booms and bubbles they often tend to believe that they know best.

Take Lehman Brothers, which had seemingly learned the need for solid risk management from two near-death experiences in the 1990s. By 2007, the firm's risk supremo was being excluded from key meetings, and those who disagreed with the aggressive commercial real estate strategy that helped bring the firm down were removed. That smacks more of hubris than of stock-market timing.

But the Harvard study does offer a reminder that while executives and Lehman and Bear lost a bundle when their firms collapsed, they also hung onto much of the fortune they had made beforehand because they were able to sell some of the stock holdings they had built up.

Under Wall Street's old partnership structures, selling equity was close to impossible until a partner retired. Now stock awards tend to become accessible a few years after they are made. The research paper fails to identify how much stock executives at Bear and Lehman sold to meet legitimate expenses like tax obligations. But it rightly notes that the ability to sell large chunks of stock and options could influence the business decisions executives make.

The Harvard authors suggest limiting all stock and options sales to 10% of an executive's holdings each year. And maybe shareholders and regulators should be thinking along these lines.

But guarding against Wall Street bosses' conviction that they're too smart to fail -- a conviction that can cost those same bosses whatever holdings they have left -- is far harder. To top of page

Company Price Change % Change
Bank of America Corp... 16.15 0.00 0.00%
Facebook Inc 58.94 0.00 0.00%
General Electric Co 26.56 0.00 0.00%
Cisco Systems Inc 23.19 -0.02 -0.09%
Micron Technology In... 23.91 0.00 0.00%
Data as of Apr 17
Index Last Change % Change
Dow 16,408.54 -16.31 -0.10%
Nasdaq 4,095.52 9.29 0.23%
S&P 500 1,864.85 2.54 0.14%
Treasuries 2.72 0.08 3.19%
Data as of 6:52pm ET
More Galleries
50 years of the Ford Mustang Take a drive down memory lane with our favorite photos of the car through the years. More
Cool cars from the New York Auto Show These are some of the most interesting new models and concept vehicles from the Big Apple's car show. More
8 CEOs who took a pay cut in 2013 Median CEO pay inched up 9% in 2013 to $13.9 million. But not everyone got a bump last year. Here are eight CEOs who missed out. More
Sponsors
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.