Big Bonuses Seen Again for Wall St

From NYT Business section. You can get a lot of info about how the Street shares its profit by reading this article. Here is one of piece of info I got out of the article that I think some of you find interesting :)
First-year associates, those just out of business school, can expect a range of $200,000 to $270,000 in total compensation — base pay, bonus and long-term compensation — while a first-year analyst, just out of college, can expect to make $105,000 to $145,000.
Big Bonuses Seen Again for Wall St.

Published: November 7, 2006

On Wall Street, the rich keep getting richer.

For a fourth consecutive year, year-end bonuses are forecast to be highly lucrative, with the payouts rising 10 percent to 15 percent from 2005, according to Alan Johnson Associates, a leading executive compensation consultant.

Investment bankers, who give advice to corporations, are expected to experience the biggest percentage jump, about 20 percent to 25 percent this year, from 2005.

But it will again be the traders, who make investment bets for their firms, and those who operate in the complex world of structured products and derivatives that will take home the biggest checks this year, with top-end estimates in the range of $40 million to $50 million, Wall Street executives say.

"Traders are making more than bankers and that will probably continue for one more year," said Alan Johnson, the managing director of the consultant firm. "Then it will be a horse race."

Of course, the $50 million trader is the exception, not the rule.

The year-end bonus, which makes up most of a Wall Street professional's compensation, can vary widely.

The average managing director at a top Wall Street bank is expected to take home a bonus of $1.7 million this year, up from about $1.2 million last year. The range of managing director total compensation, according to Mr. Johnson, is $1.7 million to $2.3 million. While those may seem stately sums to many, it puts those executives back where they started before the technology bubble burst and their pay tumbled nearly 50 percent.

Then there are the rainmakers. Senior investment banking executives say top bankers can expect bonuses of $20 million to $25 million. Financial sponsors, the bankers who cater to the private equity funds that have driven much of the frenzied merger activity this year, have had a strong year in particular.

Globally, more than $3.2 trillion worth of mergers and acquisitions have been announced in 2006, compared with $2.4 trillion in 2005, according to Dealogic. Buyouts represented 17 percent of the dollar total for 2006, compared with 12 percent last year. Other investment banking areas that have been strong include health care, financial institutions and energy and power.

Traders, in comparison, can make extraordinary sums because they use the bank's capital to make bets, allowing them to take big risks that either result in big rewards or gigantic headaches. Traders can make 5 percent to 10 percent of what they earn. For example, a trader who makes $500 million for the bank might take home $50 million.

Wall Street is evolving from a business focused entirely on clients — corporations, institutions and individuals — to one that generates money betting its own capital (proprietary trading) along with the business of advising and trading for clients.

The banks are being buoyed by a number of factors, including abundant global liquidity — capital available to be invested — and tremendous international growth, focused in large part on India and China, but also extending to the Middle East, Eastern Europe and Russia. For the first nine months of 2006, Goldman Sachs and Morgan Stanley earned more in profits than they did in all of 2005, according to their financial statements.

And if a rising tide lifts all boats, Wall Street's booming fortunes are producing more yachts.

The average securities salary is now 5.1 times the average salary paid in other industries, up from 2.5 times in 1990 and 4.3 times in 2003, according to a recent report released by the New York state comptroller, Alan G. Hevesi. The securities industry accounted for only 4.7 percent of jobs in New York City in 2005, but 20.6 percent of the wages.

First-year associates, those just out of business school, can expect a range of $200,000 to $270,000 in total compensation — base pay, bonus and long-term compensation — while a first-year analyst, just out of college, can expect to make $105,000 to $145,000. Guarantees — contracts which promise to pay bankers a fixed amount for a certain number of years — are back, but only one- and two-year contracts, Mr. Johnson said. At the height of the technology boom, three-year guarantees were commonplace.

But life in the middle might be getting tougher, according to Mr. Johnson. Associates and vice presidents were in high demand in 2003 because the markets came roaring back to life before staffing on the Street was adequate. Now, however, demand seems to be weighted toward the ends rather than the middle.

"We are seeing a lot of demand at the top and a lot at the bottom, but not as much in the middle," Mr. Johnson said. "With technology, you don't need as much in the middle."

Wall Street managers say they are feeling less of a threat from hedge funds. While top talent may be lured away by the promise of independence and more self-generated profits, many hedge funds are struggling to post good enough numbers to attract enough capital to make it worth the risk. Also, those funds tend to be small. "A big hedge fund has 40 people," Mr. Johnson said. "They will hire your two best but they will not hire the 98 people behind them."

Others disagree, saying there is much competition for talent.

And Wall Street giants' compensation still pales in comparison with their hedge fund counterparts. In 2005, the top hedge fund manager took home $1.5 billion in pay while the price of entry to be on the list of the top 25 paid managers, compiled by Institutional Investor's Alpha magazine, was $130 million.
Exactly one year later and the bonus report may look differently ;)

Bonus Outlook: They're Not Dead Yet

Oct 30 2007
By Jon Jacobs
Although Wall Street is awash in gloomy news, year-end bonuses could exceed rapidly darkening expectations.

Johnson Associates compensation outlook reports

Since July, a pullback of liquidity in many credit markets is putting a damper on the formerly buoyant merger and acquisitions advisory business. But fees generated by record deal volume in the first eight months of 2007 should help cushion advisory groups' payouts for the full year. Wall Street recruiter Joe Ziccardi, chief executive of Cromwell Partners, looks for M&A bonuses to match 2006, "with some vulnerability to be down 10 percent."
Meanwhile, bulge-bracket firms are still making profits from their equity businesses. That suggests equity groups will see their awards at least match last year's levels, Ziccardi says. "Assuming the market does not unravel, I would expect equities to have a moderately good year with bonuses being between flat to being up 10 percent."
However, in the hard-hit areas of fixed income and leveraged finance, Ziccardi looks for payouts to fall 30-50 percent in the U.S. and 10-30 percent in Europe.

Other Views
Alan Johnson, a widely quoted compensation consultant, continues to voice a fairly benign outlook for 2007 bonuses, even while he turns increasingly pessimistic about 2008.
Despite the heavy toll on industry-wide profits from the sub-prime mortgage blowup, Johnson sees bonus pools for many departments other than fixed-income to be on track to exceed last year. "It's not so bad to be getting paid flat to up a little bit from 2006, which was a great year," he says.
Johnson is far from bullish: Since mid-year he's been predicting that investment banks' profits, compensation and U.S. headcounts will all contract in 2008. But he says outsize profits earned in this year's first half will hold 2007 payouts at or above 2006 levels for the majority of professionals in areas like M&A, equities, prime brokerage, asset management and private equity. He also says banks expect to post better results for the fourth quarter, thanks in part to the write-offs they just took.
While acknowledging that weaker firm-wide profits or outright losses in this year's second half point to downward revisions in some sectors for the year-end ompensation outlook he issued in August, Johnson expects payouts will be slashed only for fixed-income divisions where losses were concentrated, such as mortgage trading, structured finance and leveraged lending.
Regarding Merrill Lynch's $2.24 billion third-quarter net loss and much-enlarged $8.4 billion write-down announced Oct. 24, Johnson says, "Merrill is going to be one of the (compensation) laggards, but somebody has to pull up the rear." While the magnitude of Merrill's debacle was unexpected, he says it doesn't alter the industry-wide outlook for 2007 bonuses.
Other observers are less sanguine.
"With the Street writing off billions, how can the bonus outlook be good? That's not encouraging for anybody's bonus," says Jay Gaines, chief executive of search firm Jay Gaines & Co. The Street "may get tougher on its marginal performers, both in terms of bonuses and in terms of keeping them," Gaines adds.

Hedge Funds' Payouts Seen Climbing

Beyond Wall Street, the bonus outlook appears to be holding up well. Sources tell eFC that most hedge funds are poised to boost bonus levels after bouncing back from a scary August when many funds suffered losses. George Yulis, principal at Rothstein Kass Executive Search Group, predicts hedge funds on the whole will pay their accounting and operations groups 15-20 percent more total compensation than last year. Many funds "were hedged appropriately" against last summer's credit-market turmoil and equity market correction, Yulis says.
Even funds that post mediocre returns want to hold onto their employees in order to continue offering investors a broad menu of strategies, says Sandy Gross, managing partner of Pinetum Partners, a hedge fund-focused search firm. Gross says publicly traded fund managers may have to adjust payouts and other expenses when revenue - which for funds is closely tied to returns and asset size - slows. But the majority of fund firms that are privately held can opt to ride out a bad quarter or a bad year if they anticipate better times ahead.
Goldman Sachs 2007 Bonus Pool Is Large Enough for Bear Stearns to Swim In

And amazingly enough, Goldman's bonus pool this year is bigger than last.

Nov. 7 (Bloomberg) -- When Goldman Sachs Group Inc. employees cash their year-end checks, they'll have enough money to buy Bear Stearns Cos.
Goldman, the biggest and most profitable U.S. securities firm, set aside $16.9 billion to pay salaries, benefits and bonuses in the first nine months of 2007, according to the company's third-quarter earnings report. The stock market values Bear Stearns Cos., the fifth-biggest firm, at $14.7 billion. Bonuses, the majority of Wall Street compensation, are typically paid after the fiscal year ends this month.

The figures demonstrate how the industry's fortunes diverged this year during the collapse of the subprime mortgage market and a credit-market contraction that saddled the biggest lenders and brokerages with at least $40 billion of writedowns and losses. Bonuses for fixed-income traders may fall as much as 15 percent, while payments to equity traders and investment bankers may increase as much as 20 percent, according to Johnson Associates Inc., the New York-based firm that tracks pay and hiring trends.

``This has been a year of winners and losers on Wall Street and there will be incredible variance on bonuses from bank to bank,'' said Michael Karp, chief executive officer of New York- based recruiting firm Options Group. ``The fact that Goldman Sachs can pay its employees more than Bear's market cap speaks to this disparity.''
While analysts estimate Goldman's profit will exceed last year's record, they say Bear Stearns's earnings may drop 27 percent, according to surveys by Bloomberg. Goldman gained 12 percent in New York trading this year and Bear Stearns slumped 37 percent. Both firms are based in New York.

Drop in Bonuses
Bonuses may drop about 5 percent overall on Wall Street this year from 2006, Options Group has estimated. That masks the gap between firms like Goldman, where money set aside through August already tops last year's $16.5 billion record, and Bear Stearns, where compensation fell 5.9 percent in the first nine months of 2007 to $3.1 billion.
Goldman employed 29,905 people at the end of August, almost double the 15,516 working at Bear Stearns.

Bear Stearns Chief Executive Officer James Cayne, 73, has watched the market value of his company decline more than $10 billion from its February peak. Two of the firm's hedge funds, which invested in securities linked to subprime home loans, have filed for bankruptcy protection and Co-President Warren Spector has been ousted.

Blankfein's Bounty
Analysts forecast earnings at Bear Stearns, the largest underwriter of mortgage-backed securities this year, to slump amid falling house prices and surging defaults on U.S. home loans.
Goldman, under Chief Executive Officer Lloyd Blankfein, 53, navigated through the worst credit contraction in at least nine years, posting record fixed-income revenue in the third quarter, aided by investments that gained in value as mortgage securities fell. The average estimate of 19 analysts surveyed by Bloomberg is that Goldman's earnings will gain 16 percent this year from the record set in 2006.

The numbers make it likely that Blankfein will once again lead Wall Street CEOs in annual pay after receiving $54 million in 2006. Cayne's $40 million award last year has already lost value -- more than one third of it was stock or stock options.
A Salary Cap For UBS Bankers and traders: $750,000 Max

By Anita Raghavan and Dana Cimilluca

NEW YORK -- There won't be any million-dollar babies among bankers and traders at the securities arm of UBS AG this year.
The Swiss financial giant has told investment bankers and traders on Wall Street and elsewhere that their 2007 cash pay will be capped at $750,000, with a much greater portion of their total compensation coming from stock than in other years. Previously, there was no limit on the cash amount they could get paid.
The move is among the first signs of a clampdown on pay in the financial world amid the credit crunch.
Bonus blow looms for Goldman rivals

Hugo Duncan, Evening Standard
13 December 2007, 10:08am

Gloom descended on the City today as thousands of bankers faced disappointment in the wake of the bonus bonanza at Goldman Sachs, where boss Lloyd Blankfein was paid a staggering $70m (£34.3m).

Bankers at Dresdner Kleinwort, already reeling from recent sackings in London, are facing up to the prospect of cash limits on their bonuses while counterparts at Goldman enjoy a bumper Christmas.

Fears are growing at Dresdner's offices in the City that those who get a bonus this year will see much of it paid in shares rather than cash. Highflyers will be particularly badly hit by the cash limit, thought to be €500,000 (£359,000). Such payments, due to be announced before Christmas, would be a blow to Dresdner staff days after 60 of the bank's credit team were axed - with a further 150 or so to follow.

A spokeswoman said: 'Our compensation scheme always includes an equity component, and the size of that this year is still under consideration.'

The bonus round started with a bang yesterday when Goldman bankers were told of record payments after another stellar year for the Wall Street giant. Dozens of its London staff were awarded at least £5m each, with Simon Dingemans, head of European mergers and acquisitions, among the top earners. Chairman and chief executive Blankfein's pay packet is thought to have jumped 30% to $70m.
Unlike many of its rivals, Goldman has avoided the worst of the global credit crunch, and staff are thought to have shared a total of almost $19bn - an average of more than $600,000 each. The 'Goldmine' bonanza has left the rest of the City looking on with envy.


Quant Headhunter
It will be interesting to see if the banks have employed decent lawyers on this, or even if they have thought to ask.
The law on deferred and accrued bonuses has changed in interesting ways since last time this sort of thing happened.

My very expensive lawyer is looking forward to a lucrative 2008


Vice President
I just got my bonus numbers I'm toally disgusted I work in equities IT and we had a monster year but Fixed Income took a major beating for those who work in the field how did you feel about your bonus number ?
PE had a great first half this year but didn't do so well the second half when the credit tightened. As a result, I expect the bonus pool is a bit smaller compared to what we had hoped earlier.
I just got my bonus numbers I'm toally disgusted I work in equities IT and we had a monster year but Fixed Income took a major beating for those who work in the field how did you feel about your bonus number ?

what % of your annual salary was your bonus?

what was it last year?

what did you expect it to be?

what woudl you be happy with?

i don't think those questions violate any kind of information agreement but if you dont' want to answer, thats fine.

This article appeared in the NY Post. Good example of why one should try to move from cost center groups (IT, telecom, facilities) to groups associated with revenue producing business units. The back office bonuses were cut as GS management don't believe the back office staff can move to other firms at this time with the prevailing market conditions.


January 6, 2008 -- WITH all the hype recently about Goldman Sachs being the only major investment bank to avoid being stung in last year's subprime mortgage fiasco and the record profits it rung up last year - with the record $67.9 million bonus it paid to CEO Lloyd Blankfein - one would expect that bonus season at 85 Broad Street would be a happy time.

Except for the portfolio manglers at Goldman's imploded Global alpha fund, that is.

After all, didn't the firm set aside $20.2 billion to pay employee wages, benefits and bonuses this year, a 23 percent increase from last year? That comes to about $600,000 per employee, on average.
So we were as surprised as anyone last week when we heard the whispers that some cost center employees - the back office operations, IT folks and such - at Goldman were getting stiffed.
"I've been hearing it from inside that bonuses for cost center workers were crushed," said one source. "People that expected 75 percent of their salary as a bonus, based on what they got last year, only got 15 percent his year."

Most were expecting at least the same size bonus as last year.

Those at the top were certainly taken care of.
Co-Presidents Gary Cohn, 47, and Jon Winkelried, 48, each received bonuses of about $40.5 million, up 58 percent from last year.
Here is a follow-up article
Rumour has it Goldman Sachs paid paltry bonuses to the people behind the scenes. Not true, say recruiters – although it may be elsewhere.

Last week, the New York Post ran a story claiming Goldman had paid its back and middle-office employees meagre sums amounting to just 15% of salaries, when many had been expecting 75%.

After careful digging, we can say this doesn’t appear to be the case in London, where non-revenue generating Goldmanites have apparently been paid well, albeit selectively.

“It’s been very mixed,” says one back-office recruiter, “but I know of some VP-level people in operations at Goldman who were paid bonuses of 200%.”

“The best people were paid very well indeed, but the poorest performers were paid really quite poorly,” he goes on. “In areas like trade support and settlements, some got 10%.”

Goldman’s selective parsimony is apparently nothing compared to what’s to come at the likes of a certain poorly performing Swiss bank, where top-performing VPs in trade support and settlements roles can apparently expect bonuses in the region of 50-100% and others are on track for 0-5%.”

Mike Hartwell, managing director of search firm Hartwell Buck, says bonuses this year are being allocated with an eye to offshoring in the years to come: “As processes are moved offshore, banks are going to need to retrain or lose staff from functions like cash equity settlements and flow derivatives settlements. One of the quickest ways to lose them is to pay a poor bonus.”

Malcolm Clark, a recruiter at search firm Bayley Needham, says the overall picture for back-office bonuses is mixed: “Some have done well, but at quite a lot of houses it’s definitely looking worse than last year.”
JPMorgan cash bonuses down to 25%

The cash portion of bonuses for all of the senior management team in the investment bank at JPMorgan has been reduced to 25% in line with rivals who increased payouts of stock, reports Financial News Online. JPMorgan said: "For all of the senior management team in the investment bank, including co-chief executives of the investment bank Steven Black and Bill Winters, the percentage of incentive compensation awarded as restricted stock rather than cash was increased to 75% from 50%." Banks are trying to ensure the limited cash pool is distributed most heavily to lower-paid employees and asking higher-paid bankers to take additional restricted stock. The annual compensation packages for Black and Winters fell by 5% from 2006 to USD 20m and USD 20.2m, respectively.