It's official: Replacing cash bonuses with restricted shares is moving down the corporate food chain at the biggest U.S. investment banks, and some employees could end up scrambling to meet expenses.
Monday's Wall Street Journal reports that Goldman Sachs, JPMorgan, Morgan Stanley and Citigroup have told workers their bonuses will contain a higher proportion of stock and less cash than in the past. It's still unclear how far down the compensation structure this will apply, beyond the senior executives whose new pay arrangements each bank outlined in public announcements over the past month. But already, complaints are popping up:
Some employees say the shift could leave them short of cash, since stock comes with restrictions on how quickly it can be sold. And since many people plan their household budgets around bonus expectations, they may need the cash to cover mortgages, school tuition and other expenses.
To be sure, the shift isn't likely to satisfy critics of Wall Street either. The Journal's story leaves no doubt that public anger is helping shape management decisions about compensation structures and amounts.
For instance, a report on Goldman by Calyon analyst Michael Mayo states: "We feel Goldman needs to be aware of issues surrounding its comp and should make needed adjustments." He estimates 2009 compensation and benefits expense at Goldman will total $18 billion, or about 10 percent less than 2007 (although 64 percent above 2008) and will make up about 40 percent of revenue compared with 48 percent in 2008.
At JPMorgan Chase, which reports fourth-quarter results this Friday, executives told employees they "plan to show some restraint in 2009 bonuses, partly because of anti-Wall Street sentiment," according to the WSJ. However, the company reportedly eliminated a $1 million cap on cash payments that was imposed last year.
Banks Brace for Bonus Fury [WSJ]
Citi's North American Retail Banking Head to Resign [NY Times]
Citi Replaces Japan Head [WSJ]
Boris Johnson: 9,000 Bankers Will Quit City Over 'Supertax' [London Evening Standard]
No Matter How Badly You Fail Your Investment Banking Interviews, You Can't Do Worse Than This [Mergers and Inquisitions]
Deutsche Bank Took The Coffee Cups Away From Traders [ClusterStock]
Federal Reserve Seeks to Block Release of U.S. Bailout Secrets [Bloomberg News]