As the bonus guessing game continues, Bloomberg News weighed in with an industry-wide estimate on the bullish side, projecting total bonuses at just under $38 billion, up from $36 billion last year.
Bloomberg derived its numbers from analysts' 2007 full-year revenue estimates for the five biggest U.S.-based securities firms, compensation's average share of revenue over the past five years, and an assumption that bonuses represent 60 percent of total compensation. The five banks reported compensation expense of $52.4 billion for the first nine months of 2007, up 9 percent from 2006.
Some recent surveys project a smaller total bonus pool relative to 2006. Options Group, a global executive search and strategic consulting firm, predicted last week that top banks will pay their employees in the Americas 10 - 15 percent below last year, on average. The New York State comptroller forecasts this year's Wall Street bonus pool will be 10 percent smaller than 2006.
If banks do improve on last year's huge year-end payouts, they will do so out of competitive necessity. Bloomberg says Goldman Sachs, Morgan Stanley and Lehman Brothers will set the pace for bonuses, while money-losing Merrill Lynch and Bear Stearns must follow their lead or else "they're going to lose all of their good people.''
For instance, Merrill's new chief executive, John Thain, told Bloomberg he must "pay the people who are performing...(while) taking enough money from the people who caused some of the problems." While Merrill's total compensation expenses plunged in the third quarter and year-to-date, compensation as a percentage of revenue climbed from 49 percent in the first nine months of 2006 to 58 percent this year. "It may be necessary to accrue compensation expense at a higher level in the fourth quarter to ensure (we) can appropriately reward employees whose performance will drive future growth," the investment firm said in its third-quarter earnings release.
On a less cheery note, the story relays Options Group's prediction that stock grants will make up 70 percent or more of this year's bonuses, up from 50 percent in a typical year. U.S.-based institutions may follow the lead of UBS, which is limiting the cash portion of 2007 bonuses to $750,000 and using stock for the rest.
Bloomberg's industry-wide bonus projection works out to an average $201,500 per head when split among 186,000 employees of the five investment houses.
The story also cites anecdotal signs that bankers are expecting healthy payouts despite widely publicized fears stemming from the sub-prime crisis and related layoffs. The evidence consists of recent record donations to charities including the American Museum of Natural History in New York and the UJA-Federation of New York, and a still-hot market for Manhattan apartments in the $10 million-plus category according to Corcoran Group, a leading high-end real estate broker. "A 12-room Park Avenue apartment placed on the market this month sold in less than a week for more than the $12 million asking price," the article says, citing Corcoran's chief executive.