Fourth-quarter financial results indicate the total bonus pool for Wall Street's five biggest firms climbed 8 percent in 2007, to a record high $39 billion.
Bloomberg News derived the figure by taking 60 percent of the $65.6 billion full-year compensation expenses reported by Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns. The final $39 billion total exceeded an earlier estimate of $38 billion that Bloomberg published in November. The industry awarded $36 billion in bonuses in 2006 - a year when Wall Street revenues and profits far exceeded last year's.
Compensation and benefits among the five firms grew 8.7 percent in 2007, even while revenue sagged 13 percent due to adjustments reflecting the diminished value of sub-prime mortgages and other fixed-income assets. Merrill Lynch's $15.9 billion compensation expense exceeded its full-year net revenue, which was $11.3 billion after more than $20 billion in asset write-downs. The average bonus among all employees at the five banks came to $219,198, according to Bloomberg.
Separate figures from New York State Comptroller Thomas P. DiNapoli estimate total bonuses paid to New York City-based securities industry employees dipped 2 percent in 2007, to $33.2 billion from the previous year's record $33.9 billion, and the average bonus per employee declined by 4.7 percent.
The Bloomberg story notes the bonus outlook for 2008 is considerably darker. It spotlighted Manhattan College finance professor Charles Geisst's remark, "The gilded age just ended. Ferrari dealers are going to be selling Tata cars."
Much of the comment in the story contrasts management's inclination to retain employees and market share against the shareholder perspective that compensation should shrink in line with revenue and/or profit. Then there's the Joe Six-Pack perspective that anyone earning more than the average American is overpaid no matter what he or she does.
Jeanne Branthover, managing director of Boyden Global Executive Search, acknowledged that many people would find the bonus amounts "shocking and questionable.'' But, she told Bloomberg, "People in New York, in the world of investment banking, will understand it. It's critical that pay is still there or you're going to lose really good people.''
On the other side, portfolio manager James Ellman at SeaCliff Capital painted the figures as an emblem of management's disregard for shareholders' interests. Wall Street banks, he said, "could have paid significantly smaller bonuses this year'' and still not lost people they aimed to keep. "It is surprising that none of the firms were really willing to call the bluff of their employees, especially when we know there's going to be significant layoffs.''