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BlackRock president Rob Kapito has amassed a retirement pot on track to be worth tens of millions of dollars through an unusual private equity-style bonus plan tied to the $10.6tn money manager’s private funds business.
Kapito, who has been second-in-command to chief executive Larry Fink since 2007, is the only executive named in BlackRock’s annual filings who benefits from the plan. Its link to individual fund performance is unusual for a top executive at a traditional bank or asset manager.
JPMorgan Chase, Goldman Sachs, Morgan Stanley, Franklin Templeton and Invesco all have substantial private funds businesses but the top executives named in their proxy filings do not benefit from similar plans. That stands in contrast to listed private equity firms including Blackstone and KKR, where the top executives accrue much larger pay packages through profit sharing on their funds.
When Kapito retires, he will receive an undisclosed percentage of the profits from some of BlackRock’s private market funds, an arrangement known as “points”. The pot’s potential value doubled from $9.7mn at the end of 2022 to $20.3mn at the end of last year, and it was not included in Kapito’s pay of $20.25mn for 2023, which was disclosed in the 2024 proxy statement.
In addition to his remuneration, he owns 208,373 shares of BlackRock, according to its 2024 proxy. At Tuesday’s close, they were worth about $182mn.
BlackRock said Kapito’s pay plan was one of several intended to align leadership remuneration with company performance, particularly in private markets, where the firm is trying to grow. “Attracting and retaining senior talent to support the platform is critical to achieving that goal,” the firm said.
The firm’s private assets under management, which include the funds that anchor Kapito’s incentive pay, have risen to $167bn in the past five years.
Many financial firms pay points to portfolio managers who run their private funds and the executives who supervise them. But most banks and asset managers opt to pay top officers in cash or stock that is linked to overall corporate performance.
BlackRock’s pay practices have previously come under fire from proxy advisers and investors. At this year’s annual meeting, nearly 42 per cent of shareholders voted against the executive pay plan after proxy advisers Institutional Shareholder Services and Glass Lewis warned that pay was higher than at peers and not tied closely enough to performance.
Kapito, aged 67, co-founded BlackRock with Fink in 1988 and is widely considered to embody the firm’s culture. BlackRock has been grooming a cadre of next-generation leaders amid speculation about when Kapito and Fink, aged 71, might retire. Some shareholders and insiders have raised concerns about the length of the succession process.
The BlackRock board started the retirement pot for Kapito in 2019 “to promote his long-term retention and drive future growth”, according to its 2020 proxy statement. He will continue to receive distributions on the funds for 10 years after he retires.
If Kapito had retired at the end of last year, he would only have received $144,739, according to the 2024 proxy. But he will collect more as the funds mature and start to return money to investors. The pot’s potential value doubled last year because some of the funds are starting to show paper profits on their investments.
The 2024 proxy estimated the pot’s ultimate value at $20.3mn. It calculated Kapito’s share of what the assets would have been worth if the funds had been forced to liquidate at the end of 2023. Executive pay experts said this method usually understates the final size of the pot because fund managers have the flexibility to wait for optimal prices before selling assets. If the funds’ value declines, his payout declines with it.
“It’s in the interest of the BlackRock shareholders to have whoever is involved [in private funds] to have their incentives aligned,” said Kevin Murphy, an expert on executive compensation at the University of Southern California’s Marshall business school. But, he added, “they never tell us what his percentage is. It seems like that would be useful” to shareholders. BlackRock declined to specify the percentage in response to questions from the Financial Times.
Some senior managers at banks and other traditional asset managers participate in their groups’ private funds as investors and the profits they receive are based on the amount of capital they put in.
ISS declined to comment on Kapito’s retention pay, but its written recommendation to investors about BlackRock’s executive pay plan said: “The proxy lacks several key disclosures, including quantified target goals and individual metric weightings, which are important in assessing pay-for-performance linkage.”
Glass Lewis said Kapito’s potential $20mn payout did not figure into its conclusion that BlackRock’s pay plan showed a “disconnect between pay and performance”.
Additional reporting by Patrick Temple-West in New York