Apollo Global Management is making a significant change in the compensation of top executives it sees as the “next generation of leadership.”
“We have…decided to fundamentally change the compensation for four of our next generation of leaders,” CEO Marc Rowan said in Apollo’s third-quarter earnings call. “These are not the only leaders who, in my view, are capable of the next generation, but they are four who are very visible within our organization.”
The four executives are Matt Nord and David Sambur, co-heads of private equity, John Zito, deputy CIO of credit, and Grant Kvalheim, president of Athene, Apollo’s retirement services arm.
“All four of them,” Rowan said, “have taken on increasing amounts of responsibility over the years. They now oversee not just their individual departments. They oversee massive pieces of our firm that are integrated.”
Going forward, the listed Apollo will compensate the four executives “substantially in stock,” Rowan said. This will involve taking the compensation of fee-related earnings (FRE), spread-related earnings (SRE) and principal investing income (PII) that Nord, Sambur, Zito and Kvalheim “would have received” and “replace a very large portion of that with stock.”
The result will be to align the four executives with Rowan and co-presidents Scott Kleinman and James Zelter, who are paid primarily in stock.
The change not only signals the growing importance of Nord, Sambur, Zito and Kvalheim at Apollo, but also reflects a long-term shift in the organization’s compensation scheme. “Our goal over time,” Rowan said, “is to pay our people more PII [realized performance fees and investment income, less profit share and expenses] and less FRE and SRE.”
Taking this step will get Apollo nearer to paying everyone in the same way, including sharing PII “to others in our firm,” Rowan said. In addition, it will mean keeping more FRE and SRE “for the house” and “less of the PII.” Shareholders, he noted, place a high value on FRE and SRE, which are predictable, and less value on PII, which is more volatile.
By identifying Nord, Sambur, Zito and Kvalheim as future leaders, and adjusting their compensation accordingly, the $631-billion Apollo is suggesting its eye is on the horizon.
In the earnings call, Rowan, one of Apollo’s co-founders, emphasized this point: “It’s not just compensating people. It’s also about the culture.”
“If we can be the best place for our 200 partners to work, we’ll retain their judgement throughout their whole career,” he said. “We’ll also send a message to our next generation of principals that partnership at Apollo is what it’s all about. And then…younger people entering our firm…will have two amazing generations of mentors to teach them the business.”
“We’re not seeking to be the biggest, we’re not seeking to be the fastest growing,” he added. “We’re seeking to build something that is sustainable over a very long period of time.”
The compensation awards outlined by Rowan total roughly $550 million, including the replacement of most FRE, SRE and PII compensation of the four executives with stock.