Michael Cavanagh, the high-ranking J.P. Morgan Chase & Co.
executive who quit suddenly to take a job with Carlyle Group LP, is
guaranteed annual compensation that is less than what he made at
the bank. But he will have the potential to earn vastly more
depending on the private-equity firm's investing performance,
according to a securities filing Friday.
Mr. Cavanagh, who will help run Carlyle, had been co-head of
J.P. Morgan's Wall Street operations and was considered a
front-runner to succeed Chief Executive James Dimon atop the
largest U.S. bank by assets. The 48-year-old's departure is the
latest in a string of defections from Mr. Dimon's inner circle and
underscores the increasing allure of private equity for top
bankers.
Annually, Mr. Cavanagh will earn at least $5 million in cash and
be awarded $2 million worth of stock during his first three years
at the firm, the filing says. The cash component of his pay breaks
down to a base salary of $275,000 a year--the same rate at which
all Carlyle's top executives are paid--an annual guaranteed minimum
bonus of $2.725 million for his first three years, along with a $6
million signing bonus paid over three years, according to the
filing.
Mr. Cavanagh made about $17 million at J.P. Morgan last year,
according to people familiar with the matter. Mr. Dimon made about
$20 million.
Like many executives who lead publicly traded private-equity
firms, however, base pay is only part of their potential take-home
earnings. Last year Carlyle's three founders, to whom Mr. Cavanagh
will report, collectively took home about $750 million, including
dividends paid on their Carlyle shares. Salary represented about a
tenth of a percent of their collective haul, according to
securities filings.
When he starts at the firm, Mr. Cavanagh will be enrolled in an
incentive program Carlyle is launching for three top executives.
Each year he and Glenn Youngkin, whom Mr. Cavanagh will work
alongside, and Chief Financial Officer Adena Friedman will be
awarded Carlyle shares worth a percentage of the firm's cut of deal
profits, a perk that could add tens of millions of dollars to their
take-home over time.
At Carlyle, Mr. Cavanagh will be co-president and co-chief
operating officer with Mr. Youngkin, a 47-year-old who rose through
Carlyle's ranks from making deals for industrial companies to
helping run the Washington, D.C., firm's day-to-day operations. Mr.
Cavanagh is expected to start at Carlyle in June, following Wall
Street's customary months off, or "garden leave," between jobs.
Carlyle is also giving Mr. Cavanagh stock currently worth $32
million to make up for unvested J.P. Morgan shares he left on the
table when he resigned from the bank.
Carlyle shares closed 2.3%, or 76 higher, at $34.30 on Friday.
The stock has risen 56% since the firm's May 2012 initial public
offering.
Since going public, Carlyle has hired several well-known
executives from banks, other private-equity firms and elsewhere to
bolster its top ranks and offer its three founders, each in their
mid-60s, multiple of succession options.
Write to Ryan Dezember at ryan.dezember@wsj.com
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