Another Banner Bonus Year

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Wall Street's bonuses will be up between 10 to 20 percent this year, with investment bankers and equities specialists among the most highly rewarded, say forecasts released this week.

"This will be another banner year for Wall Street professionals," says Alan Johnson, managing director of the compensation consultant Johnson Associates, which estimates incentive payouts will average 10 to 15 percent higher than last year's. "Solid earnings performances by the major brokerage and investment firms, combined with the ongoing war for top talent, are fueling the larger incentive awards."

Another forecast, released by the search and consulting firm the Options Group, predicts an overall increase in bonuses of 15 to 20 percent.

Both firms say investment bankers should see their bonuses rise by 20 percent or more. European and Asian equity underwriters will see record payouts because of demand for new issues in those markets, says the Options Group.

Because come investment banks performed extraordinarily well this year, some Wall Streeters will receive "eye-popping" awards, Johnson says. According to Bloomberg, Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns will together award $36 billion in bonuses to their 173,000 employees. Brad Hintz, an analyst at Sanford C. Bernstein & Co., told the news service that "this year will be the best ever for the major brokerage firms" given the pace of takeovers, equity trading and credit derivatives.

On a sector-by-sector basis, Johnson foresees these increases:

  • Investment Banking: up 20 percent
  • Prime Brokerage: up 15 percent
  • Equities: up 15 percent
  • Asset Management: up 10 - 15 percent
  • Senior Firm Management: up 10 - 15 percent
  • Corporate Staff: up 10 - 15 percent
  • High Net Worth: up 10 - 15 percent
  • Fixed Income: up 10 percent
  • Commercial Banking: 10 percent
  • Retail Banking: up 5 - 10 percent

Wall Street compensation has increased steadily since 2003, following declines in both 2001 and 2002. Johnson says the average investment bank managing director should earn about $1.5 million in incentives this year, compared with $1.2 million last year. He expects most firms to accelerate their hiring plans in 2007. ""The business environment looks solid and barring any economic decline, we expect next year's bonuses will be up sharply once again."

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