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Bonuses Are Up, But Do You Stack Up?

Wall Street bonuses for many could be much fatter than last year, with investment bankers expected to get the biggest year-end payouts, two salary surveys out today predict.

A survey by the Options Group, a New York-based international search firm, says Wall Street bankers can expect bonuses to be up an average of 10% over last year, and Europe's bankers can expect bonuses to rise 20%. "Europe has experienced a higher volume of business, and has contributed more than ever to the bottom line," says Michael Karp, founder and managing partner.

Johnson Consulting, a Wall Street pay and compensation consultant, also predicts a very favorable bonus climate this year. U.S. bankers should see bonuses rise an average of 5% to 10%, the firm says, with the biggest increases in prime brokerage and M&A.

The Options Group is forecasting the healthiest increases in the commodities area, where it says bonuses could surge 30% over last year. Like Johnson, the Options survey also predicts healthy growth in investment banking, where it says managing directors should see bonuses rise 25%, to between $2m and $3m on the back of healthy deal volumes.

But not everyone will be included in the big-number bonus bonanza. For example, the Options Group says managing directors in credit derivatives trading are likely to see pay up no more than 5%. "2004 was a banner year for credit derivatives," says Karp. "This year hasn't been as good with the downgrading of Ford and General Motors hitting the market in the second quarter. They will do well to maintain pay."

Indeed, as always, the size of one's bonus can vary widely, and generally reflects sector performance as well as individual impact on the bottom line. For example, bonuses for fixed income traders, those who trade debt, are expected to be flat to 5% higher, while traders involved in this year's high-growth areas such as commodities and energy should fare the best, survey data and analysts say.

"Directionally, I think all of this speculation about bigger bonuses is correct but like everything else, beware the hyperbole," says Peter K. Gonye, co-head of recruitment firm Spencer Stuart's private equity and investment banking practice group in the U.S. "I don't think this is, all of a sudden, a year where you get break-through levels in bonuses," Gonye says. "2005 was not quite as robust as 1999-2000, but it's starting to get there."

While actual bonuses won't be known for weeks, Gonye says, if the business you're in hasn't done too well, don't expect miracles. "Stars will continue to get the most pay and average performers will continue to get average pay," he says. "Everyone else will have to fend for themselves."

Gary Goldstein, chief executive of search firm the Whitney Group, also sounds a note of caution. While the Options Group is forecasting bonuses of $2m to $3m for managing directors in mergers and acquisitions (M&A), he says the range will be more like $1.2m to $1.8m. Investment bankers may have had a good year, but not that good.

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