Mixed Signals for Bonus Expectations 2005

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Goldman Sachs, Morgan Stanley, Lehman Brothers and Bear Stearns have already announced 2005 bonuses with JP Morgan, Merrill Lynch and CSFB to follow soon in the New Year. Look out for bankers to move as other banks announce their bonus payouts before mid-February.

The general verdict on payouts already announced is good. "In general, numbers are in line with expectations across the board," says Michael Karp, co-founder and managing partner at search firm Options Group. So far, people "have not been disappointed," confirms Mindy Diamond, president of Diamond Consultants, a financial services executive recruiter.

As per expectation, it looks like Goldman Sachs, which saw net earnings rise 24% this year over last, has been the most generous. "The feedback says Goldman paid up 20% in fixed income areas," says the head of capital markets recruitment at one Wall Street search firm. "Goldman paid as well as people expected," says a rival.

Morgan Stanley also looks like having done its best not to disappoint. Despite having a difficult year and a change of CEO, the Wall Street rumor mill says Morgan was generous, although not always for the right reasons. "Stock incentives were given to a large group of people at Morgan Stanley to make them feel special," says the head of one international search firm. "But the perception is they were given for political reasons rather than on the basis of merit. Some people haven't taken it too well, and there will definitely be departures in the New Year."

Another bank that may not have paid as well as it could have is Lehman Brothers. Despite a bumper year, the grapevine says the bank didn't dig too deep to reward staff, particularly in its equities division. "People at Lehman haven't been rewarded as well as they expected," says one search CEO.

Downhill from Here?

Current grumblings could be replaced by more widespread disappointment in the New Year. The banks that have announced so far have been the pure investment banks. Francine McKenzie, a consultant at Wall Street pay specialist Johnson Associates, says they usually pay the most.

Mary Helen Dunne, a senior partner at search firm Russell Reynolds backs this up: "With the first four banks that announced bonuses in December, most people's expectations have been met. However, several banks which pay after December may disappoint their bankers as those banks have less generous bonus pools allocated."

If the universal banks pay badly, it may not be for the first time. Bonuses at JP Morgan were said to be poor last year after chief executive Jamie Dimon allegedly pulled back from making big payouts.

There is also speculation that very senior front office staff could reap the biggest benefits, to the detriment of juniors and people in the back office. "The expectation is that the biggest winners will be those at the top of the tree," says Jay Gaines, head of search firm Jay Gaines & Co.

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