Associate Bonus Watch 2007, Bonuses, Money, Wall Street

Associate Bonus Watch: Wall Street

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No, not law firm associates — associates at investment banks. In the absence of more law firm bonus news, let’s talk about your friends and classmates on Wall Street, who are still making way more money than you (assuming they haven’t been laid off; hey, bigger risk, bigger reward).
From Bloomberg News:

Shareholders in the securities industry are having their worst year since 2002, losing $74 billion of their equity. That won’t prevent Wall Street from paying record bonuses, totaling almost $38 billion.

That money, split among about 186,000 workers at Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos., equates to an average of $201,500 per person, according to data compiled by Bloomberg. The five biggest U.S. securities firms paid $36 billion to employees last year.

Discussion continues, after the jump.


More excerpts from the Bloomberg piece (which is rather long; you can read the full thing here):

Securities firms typically use slightly less than 50 percent of their revenue to pay salaries, benefits and bonuses, a percentage that firms adjust throughout the year. This year’s bonus estimate was based on the five-year average ratio at each of the five firms. Year-end bonuses usually account for about 60 percent of compensation.

In the first nine months of 2007, Goldman, Morgan Stanley, Merrill, Lehman and Bear Stearns told their shareholders that they set aside $52.4 billion for compensation, up 9 percent from a year earlier. For the whole year, the figure rises to $62.5 billion, according to analysts’ estimates that combined revenue at the five largest securities firms will climb 1.7 percent to $135 billion.

That brings bonuses to almost $38 billion. The total increases when bonuses for employees at hedge funds, leveraged buyout firms and banks such as New York-based JPMorgan Chase & Co. and Frankfurt-based Deutsche Bank AG are included.

The industry’s bonuses are larger than the gross domestic products of Sri Lanka, Lebanon or Bulgaria. The average $201,500 bonus is more than four times the $48,201 median household income in the U.S. last year, according to U.S. Census Bureau statistics.

Not all finance types are created equal. Just as securitization and structured finance lawyers are singing the blues, so too are their counterparts on Wall Street:

Investment banks will distribute the money less evenly than in 2005 and 2006, according to the Options Group, the New York- based firm that has tracked pay and hiring trends for more than a decade. Employees involved in packaging and trading mortgage- backed securities will see bonuses drop 30 percent to 35 percent, while commodities traders may see gains of as much as 20 percent, the company estimates.

Another change this year: 70 percent or more of bonuses will be stock grants instead of cash, up from 50 percent in a typical year, said Michael Karp, Options Group’s CEO.

UBS AG, Europe’s biggest bank by assets, is capping the cash portion of investment bank bonuses this year at $750,000 and paying anything above that in stock, said a person familiar with the company’s plans.

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Well that’s no fun. But from the banks’ perspective, it makes sense to put top performers in golden handcuffs that tie them to the company.
Finally, the article talks about ways that bankers blow their bonus money. We like the real estate angle:

Demand for “super-luxury” apartments in Manhattan, those priced at or above $10 million, also was at an all-time high in 2007, said Pamela Liebman, chief executive officer of the Corcoran Group real estate brokers. A 12-room Park Avenue apartment placed on the market this month sold in less than a week for more than the $12 million asking price, she said.

You can make yourself green with envy by following bonus news over at our sibling site, DealBreaker.
Earlier: Associate Bonus Watch 2007 archives (scroll down)

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