Wall Street banks cutting pay as trading revenue weakens
Two of Wall Street's largest banks, Goldman Sachs and Morgan Stanley along with a number of other investment firms are trimming back on bonus compensation, particularly on their trading desks.
According to a number of reports, including an article from Reuters, some companies are even scrutinizing expense reports and expecting even the most profitable workers to bring in more business for the same amount of compensation.
Reuters quotes Mark Poerio, a partner at law firm Paul, Hastings, Janofsky & Walker who advises banks on pay as saying, "in order to get your $1 million bonus before, you had to generate X amount of revenue; now it's X plus 50 percent."
It's no secret that Wall Street has been doing a comprehensive makeover on the way it pays its top producers in the wake of TARP and the financial crisis. Today's compensation practices are more in line with risk with deferred bonus payments and include what are called "clawback provisions" to protect against trades and deals that go south.
Bernstein Research analyst Brad Hintz has said the big banks have to cut pay levels of managing directors by 20 percent to 25 percent, automate more trading and cut jobs. Yesterday, Hint even trimmed his 2011 earnings estimates for Goldman and Morgan Stanley, saying damage from low trading volumes would probably far outweigh cost-cutting.
James Freeman, founder and CEO of advisory firm Freeman & Co, believes that if trading activity remains as weak as it is now, overall compensation could drop 15 percent to 20 percent at large trading houses.
According to Reuters, pay and benefits represents 44 percent of Goldman's revenue during the first quarter, up from a year earlier and on par with 2007, before the crisis. At Morgan Stanley, compensation rose to 57 percent of revenue from 49 percent a year earlier. the article goes on to point out that at $430,700 per employee, on average, Goldman has one of the highest salaries on Wall Street. At Morgan Stanley, the average is $256,596.