Friday, September 18, 2009

Financial Execs Underpaid? 
 
A Limited Survey  Richard X. Bove
Vice President Equity Research
Financial Sector
rbove@rochdalesecurities.com
813.909.1111
 
Methodology and Results 
Using  data  derived  from  USA  Today  and  Sports  Illustrated  an  attempt  was  made  to  compare  total  compensation  in  three  broad 
sectors.    The  2007  total  compensation  of  CEOs  in  the  financial  and  non‐financial  industries  were  compared  to  the  2008  total 
compensation in sports.  The 2007 numbers were used for the executives since it is believed that this represented their top incomes. 
The top 15 in total compensation were selected in each category.  They were then placed in a matrix (see table on next page).  The 
results showed: 
 The average total compensation of the top 15 sports figures was $40 million per year (median $31 million).  The top non‐
financial executives received $39 million on average (median $30 million) and the top 15 financial executives received an 
average of $30 million (median $21 million). 
 The following were noted concerning the 45 individuals listed: 
o In the top 15, there were 6 sports figures, 5 non‐financial execs, and 4 financial executives.  
o In the middle 15, there were 5 sports figures, 9 non‐financial executives, and 1 financial executive. 
o In the bottom 15, there were 4 sports figures, 1 non‐financial executive, and 10 financial executives. 
 The two highest paid investment bankers will no longer be employed as CEOs on January 1, 2010. 
 The traditional banker with the highest pay received $29 million.  He was the only traditional banker to earn as much as any 
of the top 15 sports players. 
 There was not one woman listed in any category. 
Not shown is that the average basketball player in the NBA makes $5 million per year and the average baseball player in MLB makes 
$3 million.  The average employee at Goldman Sachs (GS/$180.91/Buy) is estimated to make $800,000 this year. 
One  might  argue  that  sports  leagues  are  government  sponsored  oligopolies.    As  a  result  of  restraining  trade  in  this  fashion, 
government allows sports figures to earn incomes at the peak of American industry.  One might also argue that by establishing trade 
restraints  in  this  sector,  government believes  that  entertainment  should  be  valued more  highly  than  the  financial  and  productive 
sectors of the economy where restraint of trade is illegal. 
This information is being provided because government is apparently now seeking to place income restraints on the financial sector, 
presumably,  because  it  believes  that  allocating  funds  to  this  sector  is  not  as  productive  for  the  economy  as  say  being  a  shooting 
guard for the Los Angeles Lakers, or a third baseman for the New York Yankees.  
Nations like China that compete with the United States globally do not seem to have the same incentives built into their systems.   
That country appears to be placing the greatest incentives on producing low priced products that can be sold globally. 
 
 
 

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 Friday, September 18, 2009
Financial Execs Underpaid? 
 
Total Compenation for the Top 15 Individuals in Three Sectors

Comp Comp Comp

Millions Financial 2007 All Other 2007 Sports 2008
$130 - $120 Tiger Woods $128
$120 - $110
$110 - $100
$100 - $90
$90 - $80 John Thain $83
$80 - $70
$70 - $60 Les Moonves $68
Richard Adkerson $65
Phil Mickelson $62
Lawrence Ellison $61
$60 -$50 Bob Simpson $57
Lloyd Blankfein $54
$50 - $40 Kenneth Chenault $50
John Mack $41
LeBron James $40
Floyd Mayweather $40
$40 - $30 Glenn Murphy $39
Kobe Bryant $35
Shaquille O'Neal $35
Alex Rodriquez $35
Edward Breen $34
Ray Irani $34
Kevin Garnett $31
Ronald Sargent $30 Peyton Manning $30
Derek Jeter $30
$30 - $20 Jamie Dimon $29 Lee Scott $29
Miles White $29
Richard Meelia $28
Daniel Hesse $28
Robert Iger $28
Alan Lafley $27 Dale Earnhardt $27
James Hackett $27 Allen Iverson $27
Kevin Durant $26
Jeff Gordan $26
Ben Roethlisberger $25
James Cracchiolo $23
Richard Fuld $22
Robert Kelly $21
Kenneth Lewis $20
$20 - $10 Jay Fishman $19
Arthur Ryan $18
Dowd Ritter $17
Ronald Logue $17
Richard Fairbank $17
Dennis Glass $16
$10 - $0
Average $30 $39 $40

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Financial Execs Underpaid? 
 
 

 
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 Friday, September 18, 2009
Financial Execs Underpaid? 
 
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RR RATINGS DISTRIBUTION

BUY 23
HOLD 48
SELL 29

RATINGS FOR STOCKS

Buy Company has demonstrated that it is a value creating concern; the return on capital (as adjusted) exceeds its cost of
capital. Stock is currently trading in a range that does not exceed its intrinsic value. Stock is expected to out-perform the
market over the next twelve months.

Hold/Neutral Company either is not creating value (i.e., its costs exceeds its return on capital) or it is trading at a price
equal to or in excess of its intrinsic value. Expectation is at best stock will perform in-line with market. If not currently
held, the stock should be avoided.

Sell Company's cost of capital exceeds its return on capital; and the company has no intrinsic value or is trading at a
significant premium to its intrinsic value. Expect stock to under-perform the market over next twelve months. 

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