Another Global Bank Caps Cash Bonuses for Investment Bankers

Last week, Morgan Stanley revealed it was capping cash bonuses for senior executives at $125,000 and now it appears Bank of America has reportedly told investment bankers it plans to freeze base salary levels and limit cash bonuses to $150,000 for some investment bankers, according to Bloomberg, who quotes two people claiming to have knowledge of the plans.

Bank of America had previously said compensation would average 25 percent less than last year. The people who spoke to Bloomberg said the cap on cash payments applies to those getting as much as $1 million in total year-end bonuses, with the rest coming in stock shares. The sources, who asked for anonymity because the matter is private, said employees are being told of their payments today and can sell some of the stock February 15.

Bank of America CEO Brian Moynihan has said he may target as much as $3 billion in cost cuts in units including the investment bank as part of his plan to revive profits.

According to the sources, a typical vice president’s base salary at Bank of America is about $175,000, while a director may make $250,000 and managing directors may earn $400,000, the people said. Bonuses, especially for senior workers, can be several times base pay. They reportedly added that traders and investment bankers getting from $100,000 to $249,999 were told they will get 20 percent of that in cash, 20 percent in restricted stock and 60 percent in the new unrestricted shares.

In the past, they said bankers used to receive 70 percent of their bonuses in cash and 30 percent in restricted shares. Meanwhile, they say payouts between $250,000 and $499,999 will be split among 18.75 percent in cash, 25 percent in restricted stock and 56.25 percent in unrestricted stock. Historically, bonuses of that size would be split between 60 percent cash and 40 percent restricted stock. And bonuses between $500,000 and $999,999 will be paid 15 percent in cash, 40 percent in restricted stock and the rest in unrestricted shares. That breakdown is more closely aligned with the historical practice of paying out 60 percent of awards in cash and 40 percent in restricted shares. Senior managers will get about 70 percent of their packages in restricted shares with the rest in cash or unrestricted shares.

Fees from investment banking, which includes advising clients on mergers and acquisitions as well as managing sales of shares and bonds, declined 35 percent in the fourth quarter to $1.1 billion, the bank said when it released earnings. The market was “challenging” because of Europe and the fallout from Standard & Poor's downgrade of the U.S. credit rating, the lender said.