Tis the season for Wall Street
Solid payments for 2004, but outlooks
mixed for 2005
By Roland Jones; Wall Street
reporter: Dec. 17, 2004
NEW YORK - On a narrow strip of pricey real estate in lower
Manhattan, the workers are in a merry mood.
Investment bankers, traders and other Wall Street types are starting to
find out how big, or in a few cases how small, their year-end bonuses
are, and unlike recent years, when profits were lean and budgets were
tight, there’s something to cheer about in 2004.
With the stock market edging higher again and the pace of
corporate deal-making strong, compensation experts and recruiters
expect this year’s bonus pool for Wall Street firms to be up 10 percent
to 15 percent over 2003 levels. That’s decent, but not as impressive as
the fat bonuses doled out in the late '90s, compensation experts say.
“Some companies are doing better, and others are doing less
well, but on the whole this has been a solid year for Wall Street
bonuses,” said Alan Johnson, managing director of the compensation
consulting firm Johnson Associates.
More than a salary sweetener
Unlike in other industries, where a yearly bonus is little more
than a salary sweetener, on Wall Street it is an important part of a
worker’s salary package and it can represent a large chunk of their
Not only are Wall Street’s bonus payments seen as a measure of
the health of financial services industry, they can also reflect the
strength of the stock market and the overall economy, analysts say.
Wall Street bonuses can also have a salutary effect on New York’s
economy, pouring millions of dollars into the coffers of retailers and
real estate firms.
But while this year’s bonus pool likely reflects a healthy
economy, not everyone on Wall Street is likely to be pleased with their
cut, notes J. Burke St. John, a senior partner at the recruitment firm
Heidrick & Struggles.
Investment bankers are expected to fare best this year, enjoying
a healthy 25 percent rise in bonus payouts — the largest increase for
any Wall Street group, according to data from Johnson Associates.
Retail and commercial bankers will see bonus increases of between and
10 and 15 percent, while fixed-income professionals will see the
thinnest envelopes, which will contain bonus increases of between 5
percent and 10 percent.
Such bonuses, it should be noted, can far exceed base salaries.
It is not unusual for senior executives at investment banks to earn
bonuses that are more than double their base annual salaries, which
themselves can average $200,000.
Bonuses are usually decided by committee and they increasingly
depend on how well a Wall Street worker’s business group has performed
during the year. So while some departments have fared well in 2004,
others have not, and the resulting bonus payouts are uneven, reflecting
a trend that developed over the last few years.
“In a different era, when every Wall Street firm was growing
year over year, bonuses would rise in unison,” St. John said. “But in a
post-bubble world, compensation is lower and performance varies from
desk to desk and from company to company.”
Another reason for the disparity is that hiring in the financial
services sector is flat, analysts say, and so firms have no need to pay
to retain talent.
M&A a reason for optimism
Still, with global deal-making on the rise, some on Wall Street
see reason for optimism. The past week was the biggest for corporate
mergers and acquisitions activity since mid-2000, with global
deal-making topping $100 billion.
The deal bonanza is a gold mine for Wall Street and it reflects
growing confidence in corporate boardrooms and strengthening balance
sheets. Indeed, on Wednesday Wall Street giant Lehman Brothers reported
that quarterly earnings beat estimates by a wide margin thanks to a
surge in its merger and acquisition business.
Still, many of the M&A deals announced in recent weeks are
likely to close in early 2005, says Alan Johnson, and so they will be
reflected in bonuses a year from now.
Johnson says that many of his clients, including some of the
nation’s largest financial services firms, are worried about the
outlook for their business in 2005 and the impact on year-end bonuses
Their concerns include the declining U.S. dollar, which may
negatively impact their foreign exchange businesses, the situation in
Iraq, a potential negative for consumer sentiment, and a decline in
their fixed-income businesses, which many see as inevitable in 2005 as
interest rates rise and mortgage activity cools.
“They’re very concerned about the big macroeconomic issues,”
Johnson said. “They have done all they can to prepare, but some things
are out of their control. Hopefully, the growth in investment banking
will offset some of this, but that’s such a small part of the business,
it can only do a modest amount to help the situation.”
A good thing for New York
Wall Street bonuses are seen as an important source of revenue
for New York City, and the generally accepted notion is when Wall
Street does well, it tends to support the city and certain key
industries, like real estate and luxury goods retailers.
But the impact of the volatile financial industry on New York’s
economy looks to be diminishing, says Greg David, editor of Crain's New
York Business, a financial news journal. The financial industry
accounts for about 5 percent of the city’s workforce and for about 20
percent of the city’s personal income, he says. And the average salary
on the Street is about $160,000 — a wage few other industries in the
“Wall Street does have an outsized influence on the local
economy, but the story for New York this year is its economy is gaining
momentum without the help of Wall Street,” David said. Two of the most
important parts of New York’s economy — the retail and tourism sectors
— are near record levels of employment. And this year the city’s
economy will see job growth for the first time since 2000, while
employment on Wall Street is flat, he added.
Still, for Manhattan real estate brokers like Christopher
Mathieson, a managing partner at JC DeNiro & Associates, Wall
Street bonus time is one of the most important times of the year for
his industry. It can bring in about 10 percent of his annual business,
he notes, adding that if that revenue were lost, it would have a large
influence on the cost of apartments in the city.
“Wall Street types love the status that a loft in the city or a
penthouse on Park Avenue can bring, and it really moves the market,”
said Mathieson. “And we depend on it for our livelihoods.”
© 2005 MSNBC Interactive