Wall Street banks will announce their annual compensation and bonuses starting this month, and forecasts are generally expecting cutbacks across the board though the rewards will still be rich at least by non-1 percenter standards.
"Obviously this is not a good year for Wall Street compensation and an awful lot of the pressure is going to fall on managing directors," Brad Hintz, research analyst with Sanford C. Bernstein & Co., who said lower compensation -- largely paid from stock -- and volatility in the markets will lead to higher turnover and attrition.
Hintz said bankers in the fixed income market and credit trading will be most affected.
"Becoming a partner at a Wall Street firm is very much like becoming an NFL lineman," he said, in reference to their job's lifespan of five or six years. "After a while, your knees go and you're politely shown the door."
Employees of the biggest Wall Street banks could see compensation sink 27 to 30 percent from a year ago to the lowest level since the 2008 financial crisis, executive consulting firm Options Group reported. Johnson Associates forecasts that Wall Street bonuses may decrease by an average of 20 to 30 percent from 2010, with sharper declines for bond traders, compensation consulting firm reported in November.
"Let's recognize none of these people are going to be on street corners selling apples," he said. "You come to Wall Street and you know that you're not going to get a gold watch and you're never going to retire. It is a career where there is a high attrition rate."
A large number of the 400 partners and Goldman Sachs could see pay cuts in 2011 by half from those of 2010, the Wall Street Journal reported Monday. As banks report their year-end results, total compensation may be the lowest since 2008, the Journal reported.
Embattled Swiss bank Credit Suisse may cut bonuses by 40 percent, Swiss newspaper Der Sonntag reported.
Executives at investment bank Jefferies, based in New York City elected not to receive any bonuses this year, including CEO Richard Handler, aligning themselves with shareholders and their "tough year." Several employees were reportedly disgruntled with their pay but have since completed negotiations, the Wall Street Journalreported. A spokesman for Jefferies said the bank had no comment.
While companies across the U.S. have been subject to a volatile economic environment over concerns about Europe's debt crisis and unemployment here, employees are steeling to see how that may affect bonuses and compensation. According to professional services company Towers Watson, a majority of North American companies overall, not limited to the finance sector, expect to pay executive bonuses that are as large as or larger than last year's, a survey of 265 mid-size and large publicly traded companies showed.
Bonuses grew larger and became more prevalent across industries during last bonus season. Median total bonus payouts for S&P 500 CEOs increased to $2,150,000 in 2010, up 43.3 percent from the 2009 median of $1,500,000, Equilar, an executive compensation data firm, reported in May. Bonuses this year may or may not continue the previous upward trend. In 2010, 85.1 percent of CEOs received an annual bonus payout, compared with 73.6 percent in 2009.
JPMorgan Chase will disclose compensation figures in its fourth quarter and year-end earnings statement, scheduled to be released on Friday. The bank generally pays bonuses four to six weeks into its first quarter.
Financial services and technology companies had the largest increase in median total compensation for CEOs, rising 31.3 percent and 60.5 percent, respectively, from 2009 to 2010. Executives in the basic materials industry had the highest median total compensation of $9.9 million, they were the highest-paid executives by industry last year.
"Last year we had an understanding that the economy was turning up again -- at least for the first two quarters of last year," Alois Pirker, research director of financial research firm Aite Group. "But it didn't turn out to be accurate. We've had challenging quarters and have a difficult year ahead."
Pirker said banks have turned away from focusing on investment banking services, which are very profitable in good times, but extremely volatile. Wealth management, or brokerage, services are much more stable, he said.
"In a downturn, wealth management is the steady hand," Pirker said. "Its revenue also goes up and down but not with as big swings as investment banking."
But The New Bottom Line, a coalition of local, state and national grassroots organizing groups gathered on behalf of struggling and middle-class communities, published a report forecasting the biggest banks by assets will pay high bonuses and compensation.
"Whether it's $180 or billion or $150 billion, there are billions of dollars going to executive who crashed the economy," Tracy Van Slyke, co-director of The New Bottom Line, said," when instead they should be reducing the principal for all underwater homeowners and pay their fair share of taxes."
Van Slyke forecasts the six largest banks will have a near record year of bonuses and compensation.
The report projects total bonus and compensation for Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, Morgan Stanley and Goldman Sachs will total $146.7 billion for 2011. The actual previous high was $146.8 billion in 2007 for the same banks, which included banks that have since been acquired, like Washington Mutual and Merrill Lynch, by the biggest firms.
Van Slyke said members of her group, who have participated in various Occupy Wall Street and Occupy Our Homes movements across the country, are preparing to raise their concerns about potentially high Wall Street bonuses and unfair foreclosure practices later this month. She hopes to launch a Move Your Money campaign to boycott banks that she says pay executives excessively.
"The banks are finding every way to pad their bottom line while they take from everyone else's," said Van Slyke, whose group partnered with the Rainforest Action Network for a website criticizing Bank of America's banking practices.
Saqib Bhatti, senior researcher for Service Employees International Union who helped compile the report for The New Bottom Line, said there tends to be no correlation between profits and compensation, but there is a correlation between revenue and compensation. Therefore, even if some banks reported smaller or flat profits, they could still pay high bonuses.
For the latest report, Bhatti looked at banks' earnings announcements of the first three quarters of the year and rounded to forecast annual bonus amounts. Typically the banks will generally pay 40 percent of total revenues in bonuses and compensation, he said.
In an unstable economy with a high level of unemployment, whether bonuses are high or not, bankers are likely not going to complain.
"Having a secure job is a bonus by itself," Pirker said.
- Finance/Banking & Budgeting
- Wall Street