New York:
Now is the time of year when a Wall Streeter's fancy turns, not so lightly, to thoughts of bonuses.
Inside major financial companies, the annual rite of tallying bonuses is about to begin, with a sense of relief and even elation that would have been unthinkable only a year ago. After all those federal bailouts, many banks are turning handsome profits. Top producers are looking forward to blowout paydays once again.
In financial circles, the question on everyone's mind is this: Just how big will this payday be?
The answer, it seems, is extremely big - perhaps the biggest industrywide since 2007, at the height of the bubble, according to a study released on Wednesday by the pay consultant Johnson Associates.
The annual report, a closely watched signpost for the bonus season, projected that the financial industry payouts would be up 40 percent from 2008, when they plunged in the midst of the financial crisis. In 2008, Wall Street handed out nearly $20 billion in cash awards and billions more in stock and other incentives to employees based in New York.
What is most remarkable about the estimate, compiled by Johnson Associates, is how quickly pay is expected to rebound for traders - Wall Street's current kings and queens of ka-ching.
For people who trade bonds, commodities and currencies, bonuses are expected to soar as much as 60 percent, to around their pre-crisis levels. A typical senior fixed-income trader can expect a total pay package of about $930,000 in cash and stock, compared with a package last year of about $695,000. Paychecks for stock and derivatives traders are likely to jump by half that much. Bonuses for investment bankers, by contrast, are projected to rise 15 to 20 percent. Star performers could see their paychecks surge even higher.
Whatever the actual numbers, the bonuses - most of which will be calculated between now and the end of the year and paid out in early 2009 - are bound to be controversial given the hard economic times many Americans are facing and the resentment directed at the financial industry.
The Obama administration's special pay master, Kenneth R. Feinberg, has restricted pay at the seven companies that received extraordinary government support, but most of the industry is outside his purview. Big banks are grappling with changes to their bonus systems, which regulators claim may have encouraged employees to take excessive risks. Many banks are planning to increase the percentage of bonuses paid in the form of stock or options.
"It's going to be a political and optical problem for the banks," said Michael S. Melbinger, an executive compensation lawyer at Winston & Strawn.
But while the economic fortunes of Wall Street and Main Street have diverged, so too have the fortunes of certain employees within the financial industry. This will be an unusually lopsided year for bonuses. While traders are looking forward to fat bonuses, payouts for people working in asset management, corporate and retail banking and the insurance businesses are expected to be flat or even down, according to the study.
Given the decline in the once-booming mergers and acquisition business, bonuses for certain dealmakers could fall 10 to 15 percent. And the once-gilded paychecks of hedge fund managers are expected to decline 15 to 25 percent. Private equity executives will be among the hardest hit, with their year-end bonuses falling 20 to 25 percent as they struggle to sell many of their investments.
"This is a year of two different worlds," said Alan Johnson, of Johnson Associates. "It's not a broad-based recovery."
The firm's study by no means provides a complete view of bonuses. For example, it did not examine specific dollar amounts for individual employees; instead, it looked at the projected increase to the bonus pool for several different financial businesses. In addition, it looked only at year-end bonuses and long-term stock awards, leaving aside large salary increases and option grants that several big banks made earlier this year. "Main Street is ticked off that Wall Street is making all this money," said Joseph E. Bachelder, a compensation lawyer.
Still, after traumas of the last year exposed how poorly many banks managed their risks, many Americans might be relieved to know that experienced risk managers are a hot commodity on Wall Street. For them, according to the Johnson study, annual bonuses are expected to rise 40 percent this year.
Inside major financial companies, the annual rite of tallying bonuses is about to begin, with a sense of relief and even elation that would have been unthinkable only a year ago. After all those federal bailouts, many banks are turning handsome profits. Top producers are looking forward to blowout paydays once again.
In financial circles, the question on everyone's mind is this: Just how big will this payday be?
The answer, it seems, is extremely big - perhaps the biggest industrywide since 2007, at the height of the bubble, according to a study released on Wednesday by the pay consultant Johnson Associates.
The annual report, a closely watched signpost for the bonus season, projected that the financial industry payouts would be up 40 percent from 2008, when they plunged in the midst of the financial crisis. In 2008, Wall Street handed out nearly $20 billion in cash awards and billions more in stock and other incentives to employees based in New York.
What is most remarkable about the estimate, compiled by Johnson Associates, is how quickly pay is expected to rebound for traders - Wall Street's current kings and queens of ka-ching.
For people who trade bonds, commodities and currencies, bonuses are expected to soar as much as 60 percent, to around their pre-crisis levels. A typical senior fixed-income trader can expect a total pay package of about $930,000 in cash and stock, compared with a package last year of about $695,000. Paychecks for stock and derivatives traders are likely to jump by half that much. Bonuses for investment bankers, by contrast, are projected to rise 15 to 20 percent. Star performers could see their paychecks surge even higher.
Whatever the actual numbers, the bonuses - most of which will be calculated between now and the end of the year and paid out in early 2009 - are bound to be controversial given the hard economic times many Americans are facing and the resentment directed at the financial industry.
The Obama administration's special pay master, Kenneth R. Feinberg, has restricted pay at the seven companies that received extraordinary government support, but most of the industry is outside his purview. Big banks are grappling with changes to their bonus systems, which regulators claim may have encouraged employees to take excessive risks. Many banks are planning to increase the percentage of bonuses paid in the form of stock or options.
"It's going to be a political and optical problem for the banks," said Michael S. Melbinger, an executive compensation lawyer at Winston & Strawn.
But while the economic fortunes of Wall Street and Main Street have diverged, so too have the fortunes of certain employees within the financial industry. This will be an unusually lopsided year for bonuses. While traders are looking forward to fat bonuses, payouts for people working in asset management, corporate and retail banking and the insurance businesses are expected to be flat or even down, according to the study.
Given the decline in the once-booming mergers and acquisition business, bonuses for certain dealmakers could fall 10 to 15 percent. And the once-gilded paychecks of hedge fund managers are expected to decline 15 to 25 percent. Private equity executives will be among the hardest hit, with their year-end bonuses falling 20 to 25 percent as they struggle to sell many of their investments.
"This is a year of two different worlds," said Alan Johnson, of Johnson Associates. "It's not a broad-based recovery."
The firm's study by no means provides a complete view of bonuses. For example, it did not examine specific dollar amounts for individual employees; instead, it looked at the projected increase to the bonus pool for several different financial businesses. In addition, it looked only at year-end bonuses and long-term stock awards, leaving aside large salary increases and option grants that several big banks made earlier this year. "Main Street is ticked off that Wall Street is making all this money," said Joseph E. Bachelder, a compensation lawyer.
Still, after traumas of the last year exposed how poorly many banks managed their risks, many Americans might be relieved to know that experienced risk managers are a hot commodity on Wall Street. For them, according to the Johnson study, annual bonuses are expected to rise 40 percent this year.
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