How Banks Rank in Pay Per Employee

Goldman Sachs recorded $565,725 in compensation expense per employee over the first nine months of 2007, more than triple Merrill Lynch's $181,300.

It's no surprise to see Goldman occupying the top rung of Wall Street's compensation ladder, or Merrill sitting on the bottom after a stinging third-quarter net loss. But these year-to-date numbers - culled from investment banks' third-quarter announcements and published by Reuters on Monday - are far from an apples-to-apples comparison. They represent firm-wide averages for all employees, rather than amounts that can be compared for specific roles or titles.

It's widely believed that Goldman offers the best compensation on the Street. The rationale is Goldman pulls in twice as much revenue and profit per employee, does larger deals and gets more of its revenue from trading than other bulge-bracket banks. On the other hand, most Goldman employees probably don't make anywhere near double what their counterparts elsewhere make. For the vice president level, a headhunter source last year pegged the Goldman premium at about 10 percent. The pay gap between Goldman and rivals is thought to be the widest at the top of the pyramid - among managing directors. They receive a large share of each bank's total bonus pool, which is closely tied to profits of the firm and the business unit.

Reuters derived average compensation by dividing total compensation expense that each firm accrued for the first three quarters of its fiscal year by its s total employment at the end of the third quarter. The computation naturally yields higher ratios for firms whose work force is dominated by front-office roles such as traders, investment bankers and portfolio managers. At any firm, these professionals bring in revenue and are well rewarded for it. Conversely, average compensation per employee is biased lower for firms like Merrill, which employ more administrative staff and retail brokers.

Nine-month average compensation at the other three bulge-brackets cited by Reuters came in at:

- Morgan Stanley: $280,112

- Lehman Brothers: $254,664

- Bear Stearns: $199,729

When considering each firm's revenue as well as changes in headcount, average compensation rose 4 percent year-over-year at Goldman and 9 percent at Morgan Stanley, dipped 2 percent at Lehman, and plunged 19 percent at Bear Stearns and 27 percent at Merrill Lynch.