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Despite $2.4M bonus, LPL CEO earned far less than rivals

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Even a cash bonus of quadruple his salary didn't bring LPL Financial CEO Dan Arnold's compensation close to that of the CEOs of the firm's closest rivals.

Arnold, 54, earned total compensation of $7.1 million — including the cash bonus of $2.4 million — for the year, the nation’s largest independent broker-dealer disclosed March 29 in its annual proxy filing.

That bonus came after the company set a record in recruited client assets and nearly doubled its net income in 2018. The value of his compensation declined by about $300,000 from the previous year due to a one-time stock grant he received in 2017 after taking over as CEO.

Arnold took home less than CEOs at the firm's closest rivals. Ameriprise CEO Jim Cracchiolo received $22.3 million in direct compensation, while Raymond James CEO Paul Reilly got $12.5 million.

Arnold received 135% of his target award after LPL’s compensation committee increased the bonus pool funding to $55.4 million, the proxy states. The committee cited growth in profits, recruited assets of $27.3 billion and progress “that exceeded expectations” on the firm’s long-term goal of improving its business relationships with advisors.

The committee also considered LPL’s “strategic execution, including its progress in providing new capabilities that help its financial advisors differentiate themselves in the marketplace,” the proxy states. “For example, the company’s acquisition of AdvisoryWorld accelerated delivery of technology solutions to the Company’s financial advisors for proposal generation, investment analytics and portfolio modeling.”

The bonus pool came out as 6.2% of adjusted EBITDA in 2018, compared to 7.5% the previous year. LPL “generally performed well against its 2018 corporate goals,” the proxy says, outlining additional criteria around culture change, operating leverage and risk management.

Planners ranging from sole practitioners to the largest OSJ enterprises welcomed the CEO’s comment that the firm's culture was not aligned with its strategy.
September 4

While the IBDs at Ameriprise (No. 2) and Raymond James (No. 3) are the closest direct rivals to LPL, both firms include employee brokerages and several other divisions outside wealth management. SEC rules about the timing of equity award valuations also made the official bottom-line total of Cracchiolo and Reilly’s compensation vary from the direct amounts.

Reilly, 64, received a cash bonus of $5.5 million — lower than a target of $8 million — on top of his $500,000 salary in fiscal 2018, the firm’s Jan. 27 proxy shows. His direct pay climbed 12% from the previous year, when he earned $11.1 million.

Raymond James produced records in revenue at $7.3 billion and net income at $856.7 million for the fiscal year, which it counts as ending in late September each year, the document states.

“The firm’s solid performance in fiscal 2018 was driven by record annual net revenues and pre-tax income in our Private Client Group segment, Asset Management segment and Raymond James Bank,” the proxy says.

Ameriprise’s CEO pay went in a different direction in 2018. Cracchiolo, 60, sustained a 43% hit to cash pay and a 23% drop in total compensation for the year “despite strong performance on financial and business and strategic metrics,” according to Ameriprise’s March 15 proxy.

In a nonbinding vote last year, 75% of Ameriprise's shareholders voted against its executive compensation. The board was “concerned” the pay didn’t receive support even though the firm had near-record results and the highest shareholder return among peers, the proxy states.

“We heard you,” the document says. “We took action.” As a result of the vote and subsequent shareholder feedback, the firm reduced its target CEO incentive by $1.8 million, eliminated the executive perquisite allowance and added more disclosures.

“While expressing strong support for management and the overall performance of the company, investors provided constructive input on executive compensation,” the document says, calling the pay policy shifts “substantial changes that have been implemented” in the previous year.

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