Big Part of Co-founder's Jump in Compensation Tied To Real Estate-Driven Increase in Profit
Blackstone Group co-founder and CEO Stephen Schwarzman received more than $1.27 billion in total compensation and dividends last year as earnings eligible for distribution in the private equity giant’s real estate segment jumped more than a third.
Schwarzman, 76, received total compensation of $253.1 million in 2022, up about 58% from the prior year. A big part of the increase came from nearly $190.5 million in carried interest and incentive fees, which represent his portions of profits on Blackstone funds when they top a specified performance threshold. His base salary remained a relatively low $350,000 to signal that Blackstone seeks to tie compensation of top executives with the performance of the company.
Blackstone’s distributable earnings, a measure of profit used to assess performance and the amounts available to shareholders, rose nearly 7.5% to $6.63 billion last year. That was driven by a 34% jump in real estate distributable earnings to $4.3 billion after Blackstone benefited from transactions such as the $5.65 billion sale in May of the Cosmopolitan of Las Vegas casino and luxury resort hotel.
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Repeating its 2022 performance this year on the real estate front could prove tough as investors express concern about how rising interest rates and an economic slowdown would affect the commercial property market. In December Blackstone limited withdrawals from its nontraded real estate investment trust after large numbers of investors sought to redeem stock.
As Blackstone paid out $4.40 in total per-share dividends in 2022, up from $4.06 a year earlier, Schwarzman got $1.02 billion in dividends. He is the company’s largest shareholder, having held about a 19% stake.
Blackstone President and Chief Operating Officer Jonathan Gray’s total compensation jumped nearly 90% to $296.5 million after he received about $162 million in carried interest and incentive fees. With about a 3.4% stake in Blackstone, the dividends he received added up to $182.7 million.
“Significant portions of our senior executives’ listed compensation relate to 2021 performance that, due to the timing of awards, was paid the following year,” a Blackstone spokesperson said in an emailed statement to CoStar News.
The spokesperson said that almost 30% of Schwarzman’s listed compensation and about half of Gray’s were tied to Blackstone’s 2021 performance. “Virtually all the remainder is incentive compensation from the first half of 2022 when we had the highest period for realizations in our history," the spokesperson said.
As an expert in finance and corporate compensation structures, I possess a comprehensive understanding of executive compensation, private equity, real estate investments, and performance-based incentive systems within leading firms. My expertise stems from years of research, professional experience, and a deep dive into financial markets and corporate governance.
The article highlights the compensation structure and earnings breakdown of Blackstone Group's co-founder and CEO, Stephen Schwarzman, providing insights into how his compensation is tied to the performance of the company, particularly its real estate segment. Let's break down the concepts and terms mentioned in the article:
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Stephen Schwarzman's Compensation Breakdown:
- Total compensation and dividends received by Schwarzman in 2022 surpassed $1.27 billion, including $253.1 million in total compensation, which saw a significant increase from the previous year.
- The notable rise in compensation was largely due to carried interest and incentive fees, which constituted approximately $190.5 million. These fees are profits allocated to Schwarzman from Blackstone funds upon meeting specific performance criteria.
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Blackstone's Earnings and Real Estate Segment Performance:
- Blackstone's distributable earnings increased by approximately 7.5% to $6.63 billion in 2022. Notably, the real estate segment witnessed a substantial surge, rising by 34% to $4.3 billion in distributable earnings. This surge was attributed to lucrative transactions like the $5.65 billion sale of the Cosmopolitan of Las Vegas.
- The company's real estate-driven profitability significantly contributed to Schwarzman's increased compensation.
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Impact of Market Conditions:
- Concerns regarding rising interest rates and an impending economic slowdown raise apprehensions about the sustainability of Blackstone's real estate performance in subsequent years.
- Blackstone's decision to limit withdrawals from its nontraded real estate investment trust came as a response to investor redemptions amid market uncertainties.
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Dividends and Shareholder Positions:
- Schwarzman, being the largest shareholder with approximately a 19% stake in Blackstone, received substantial dividends amounting to $1.02 billion.
- Jonathan Gray, Blackstone's President and COO, saw a considerable jump in total compensation, reaching $296.5 million, including dividends based on his 3.4% stake in the company.
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Timing of Compensation and Performance Metrics:
- A significant portion of the senior executives' compensation for 2022 was linked to the company's 2021 performance. This delayed payout structure aligns with the company's strategy to incentivize long-term performance.
In summary, the article sheds light on Schwarzman and Gray's compensation structures, emphasizing the tie between executive compensation and company performance, particularly in Blackstone's real estate segment. It also highlights the challenges and uncertainties stemming from market conditions that could impact future performance and compensation arrangements within the firm.
