Finra Freezes Executive Pay as Revenue Declines
Seven top executives at the Financial Industry Regulatory Authority earned at least $1 million in 2016 but a 6% decline in revenue has led the industry-financed organization to freeze salaries and promotions in 2017, according to the group’s .
“We expect operating revenue challenges to continue this year” by a projected 1%, Finra president and chief executive Robert W. Cook wrote in the report published on Friday. He attributed the 2016 decline to broad industry trends, specific business challenges and attempts to keep member costs in check.
The “scope of regulatory functions” Finra sells to other exchanges changed under its services agreements, Cook wrote, while a decline in the number of listings for initial and secondary public offerings lowered corporate financing fee revenue. Finra also lowered continuing education fees as it moved to an online delivery format “designed to reduce costs and increase convenience for our members,” he wrote.
Cook declined to accept incentive compensation that he was eligible to receive for his 2016 performance, according to the report. All but one of the group’s eight executive vice presidents took small cuts in their 2016 incentive pay, which they received in February, 2017.
Cook continues to steer a delicate course between appeasing small firms and other members who fund the self-regulatory organization while managing a payroll that can attract and retain talent.
Total compensation, including salary, incentives, deferred pay and other benefits, rose for two-thirds of the SRO’s top executives. Top earners in 2016 were:
-Todd T. Diganci, Chief Financial Officer: $1,499,380
-Steve J. Randich, Chief Information Officer: $1,252,788
-Robert L. D. Colby, Chief Legal Officer: $1,191,461
-Susan F. Axelrod, EVP, Regulatory Operations: $1,158,543
-Thomas R. Gira, FVP Market Regulation and Transparency: $2,657,909 (includes one-time cliff-vesting event related to defined benefit retirement plan)
-Michael G. Ruffino, Head of Member Regulation – Sales Practice: $1,048,167
Cook, a former SEC official and private-sector lawyer who took the Finra post last June, is paid a salary of $1 million but received $442,312 in total compensation on a pro rata basis for 2016, according to the report.
Finra’s senior executives’ salaries have been closely scrutinized for years, but executive compensation has moderated since former chairman and chief executive was paid $2.9 million in 2015 when the group had a $39.5 million loss. Another CEO, in 2009, including deferred compensation, prior to her becoming chairman of the Securities and Exchange Commission at a government salary of $165,000.
Compensation and benefit expenses in 2016 increased slightly, but incentive compensation relative to total salaries declined by 9%, Cook wrote in his introductory letter to the annual report. While spending on cloud computing, big data software and data analytics rose, Finra reduced its pension liability by approximately $80.2 million as of yearend by moving more than 1,100 employees from a pension plan to a defined contribution component of our 401(k) plan.
“For 2017, we are continuing to take steps to manage expenses closely,” he wrote. “Already this year, among other actions, we have reduced year-over-year compensation increases by freezing officer salaries, freezing promotions of existing officers (other than where necessary to back ll positions), and reducing annual merit increases for non-officers.”
The SRO’s operating revenue last year fell 6% to $844.6 million from 2015. Its profit of $57.7 million reversed a 2015 loss of $39.5 million on the back of fines that rose 85% to $173.8 million. Return on Finra’s $1.6 billion investment portfolio rose to 3.8%, or $78.2 million, from a return of just 0.4% in 2015.