Henry Kravis and George Roberts, co- founders and co-chief executive officers of KKR & Co. (KKR), received $94 million each in pay and cash dividends in 2011, about 30 percent more than a year earlier, even as profit fell.
Kravis and Roberts, who are cousins and both 68 years old, earned about $29.9 million in compensation and $64.2 million each in cash dividends from their ownership of KKR stock. They both received a $300,000 salary and $29.3 million in carried interest, or their share of deal profits, New York-based KKR said today in a filing with the U.S. Securities and Exchange Commission.
KKR isn’t required by the New York Stock Exchange, where its shares are listed, to have a compensation committee because the firm is considered a limited partnership. As a result, executive compensation is left in the hands of Kravis and Roberts, who serve as co-chairmen of the board of directors.
“It sounds ludicrous on the face of it,” said David Walker, a Boston University School of Law professor who studies executive compensation. “The problem I’ve always had with this, and it’s bothered me since they went public, is: What is to keep the founders from simply taking everything out?”
At the same time, “these are the people we think of as KKR,” Walker added. “Without them, the company would be worth nothing, some would say.”
KKR said this month that profit for 2011 dropped 65 percent to $750.9 million as investment income declined. Market volatility slowed gains at the firm’s funds, which increased 4 percent during the year, compared with 33 percent in 2010. Fee- related earnings rose as the firm deployed more capital from its private equity funds, investors added new money and transaction fees climbed at the capital markets unit.
The income of private equity executives and its taxation has come under public scrutiny this year as U.S. lawmakers are considering proposals to eliminate tax breaks that benefit some of the richest Americans. Mitt Romney, the former Bain Capital LLC CEO endorsed by Blackstone Group CEO Stephen Schwarzman, said last month his effective tax rate is close to 15 percent, less than half the top rate on ordinary income.
The income for KKR’s co-CEOs compares with $72.1 million last year, which included $20.1 million in compensation and $52 million in dividends. The two own about 86 million shares each.
KKR dropped 1.2 percent to close at $14.58 in New York trading. The firm’s shares have fallen 15 percent in the last year.
Carlyle Group, the Washington-based private equity firm seeking to go public, said in a filing last month that its three founders received a combined $413 million last year. William Conway, Daniel D’Aniello and David Rubenstein each earned a $275,000 salary, a $3.55 million bonus and $134 million in distributions.
Carlyle said in its registration filing that it also doesn’t plan to create a compensation committee as the founders “have historically made all final determinations regarding executive officer compensation.”
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