Isaacs' $20m highlights rocketing top pay levels

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The pay package for Isaacs, 36, underlines the runaway remuneration levels at the top of the investment banking industry, at a time when many banks are implementing hiring freezes or culling staff lower down the ranks amid fears that activity will slow down this year. Dramatic hiring programmes with guaranteed bonuses attached are now returning to haunt many firms. The package, which was boosted by an $8.1m bonus and $7.9m in restricted stock awards, has become fairly standard for the most senior managers in the industry, according to recent filings with the Securities and Exchange Commission in the US.

John Mack, the president of Morgan Stanley who announced his surprise resignation last month, earned just over $31m last year. Hank Paulson, the head of Goldman Sachs earned a shade over $25m last year and his two lieutenants John Thornton and John Thain earned just under $22m each.

Isaac's board level colleagues at Lehman earned similar amounts, with Richard Fuld, chief executive, taking home more than $28m. While Isaacs' own package is impressive - particularly as he is one of the youngest investment bankers to reach such senior management level - his total income pales in comparison to his more experienced peers who have tens if not hundreds of millions of dollars of equity in the firms they manage.

However, the rocketing pay packets at the top of the industry are a sharp contrast to the caution being shown lower down, especially in M&A divisions, which are beginning to see a sharp slowdown in business volumes. Credit Suisse First Boston is laying off about 250 investment bankers worldwide even after the completion of is acquisition of DLJ. Goldman, Morgan Stanley and Merrill Lynch, which dominated the industry on both sides of the Atlantic in 2000, have implemented a non-essential hiring freeze.

ING Barings is drastically paring back its non-core investment banking operations and last week ABN Amro paid zero bonuses to swathes of staff in its fixed-income and equities business after the bonus pools were squeezed by guaranteed packages. The firm denied speculation of hundreds of redundancies.

Isaacs' package reflects the rapid progress made by Lehman in Europe and Asia in the past few years and comes on the back of record profits at the firm. Last year it made $1.8bn in net income, up 57% on the previous year. Europe, which Isaacs has headed for just over a year, made 31% of these profits compared to just 21% four years ago. The firm has doubled its headcount in Europe over the same period and has hired nearly 1,000 people in the region in the past year alone. Last week it took a lease for a new one million square foot headquarters in London's Canary Wharf.

Lehman's shares have more than doubled in the past year, with Europe providing the biggest single boost to profits growth. It is understood, however, that Lehman has been paying among the best rates in Europe to hire new talent, which could leave the firm vulnerable.

It is also a personal triumph for Isaacs, widely tipped as Fuld's preferred successor as chief executive. At 17, Isaacs left school and started as a clerk on the London Stock Exchange. He worked at Smith New Court for seven years, briefly at Kleinwort Benson, before joining Goldman's derivatives business in 1989. He joined Lehman in 1996 as co-head of European equities, before rapid promotion took him to chief executive of Lehman in Europe in October 1999 and then Asia as well.