Bonus Bumper: Merrill Bottoms Compensation List, Goldman Tops.

“Worst paid employees” is not exactly a desirable reputation for a Wall Street firm looking to recover from huge losses and a chaotic, messy chief executive exit. But Merrill Lynch may be stuck with that unless it dramatically increases its compensation costs in the fourth quarter.
Reuters has run through the earnings reports for Wall Street compensation numbers, and the picture isn’t pretty. Three out of five firms set aside less money for compensation in the first three-quarters of this year than they had last year. Only Goldman Sachs and Morgan Stanley have set aside more.
Interestingly, there has been some jockeying for position on Wall Street compensation. Last year, Merrill also was at the bottom of the list for the first three quarters. But it was neck-and-neck with Bear Stearns. This year it is close to $18,000 short of Bear. Morgan Stanley has moved ahead of Lehman, switching second for third place.
Of course, many of these firms may simply be engaging in managing their balance sheets and investor expectations by lowering compensation costs in what was a rough third-quarter for much of Wall Street. Indeed, Merrill all but promised those costs would jump in the third quarter. But if losses from missteps in the credit and derivatives markets are even worse than expected—and most analysts who have looked at the issue have predicted even greater losses at Merrill—that may prove difficult.
The compensation numbers are closely related to per employee revenues, Reuters writes. “Goldman is the top with revenue of nearly $1.2 million per employee for the year to date, while Merrill is at the bottom of the heap, with just $311,916 of revenue per employee,” the report says.
After the jump: we run through the Reuters numbers from lowest to highest, with comparisons to last year’s first three-quarters compensation figures.

Merrill on track to offer lowest pay on Wall Street

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BonusDumper: Merrill Lynch Has Less Money For More People

One of the things that Merrill Lynch did to pare its losses in it’s disasterous third-quarter is to dramatically slash compensation costs. Merrill Lynch recorded just under $2 billion on compensation and benefits costs during the third quarter, about half of what of it said it spent during the same period a year ago and less than half of the $4.76 billion it recorded for second quarter of 2007. At the same time, the bank’s employment rolls have grown to 64,200, an additional 8,900 more than a year ago.
Now some of this might be simply accounting hocus-pocus, attempting to reduce costs so that their no-good, very bad fiscal quarter doesn’t look quite so bad. Indeed, Merrill admits as much when it says it may have to accrue compensation costs at higher levels in the fourth quarter. To the extent that this is true, they’re just using phony numbers, which is hardly inspiring in a bank that seems to not to have been too good about estimating losses.
But it’s a grim sign for investment bankers awaiting year-end bonuses. Indeed, it seems that Merrill bankers may lose out in the bonus race this year to colleagues at competing firms. Goldman, for instance, actually increased the amount it recorded for bonus and salary compensation this year.
Even the re-assuring noises the bank is making are, well, less than re-assuring.
“Merrill Lynch remains focused on paying its best performing employees competitively,’ the company said in a statement. But apparently it believes it doesn’t have very many of these “best performing employees” this year.

We’re not sure if this will make our lads and lasses at Merrill feel better or worse. But here’s news that white Merrill’s compensation is shrinking, it’s not shrinking as fast as earnings. That means the stampeding horde may get a larger portion of the smaller pie. But, of course, since the pie is smaller, the slice will still be smaller than last year.
Merrill Lynch cuts compensation in half [Thomson Financial via CNNMoney]

Bonuses To Be Bumped Down*

This Options Group, which tracks all things pay and hiring related on the Street, thinks bonuses will decline as much as 5% in 2007. This would be the first bonus cut in 5 years. Usually more concrete discussions about year-end bonuses start to happen in October and the potential pool becomes clearer. Our current intelligence on this is skeptical: it’s really too early to tell.
Watch the LBO market, though. If those buyouts fall apart, it could indicate deeper problems that will hit your bottom line.
Credit Woes Threaten Bonuses On Wall Street [New York Post]

grapesofwrath.jpg The general feedback to our BonusBumper feature was that it slightly overstated things. Initial reports across the Street reported $110k bonuses for first years at the highest paying banks. When numbers started coming in, most reports we received confirmed that bonuses were $90k – $100k for first years at the top of the range at the highest paying banks.
There may be some less than transparent outliers within banking divisions and Goldman always crashes the summer bonus party late, and may top out the market as it has done the past few years (any word on Goldman numbers or if they’ve been announced yet?), but $100k is a ridiculous chunk of change, especially considering where things were five years ago.
As it stands, bonuses this year represented a 300% increase from 2002 and a 122% increase from 2003, in which the top bonuses for first years at most banks were $25k and $45k respectively.
The bonusbumping is set to continue in spite of Street gargoyles predicting marketpocalypse and more subprime fallout. Record compensation is expected again at year’s end in terms of grown-up bonuses, according to estimates from Johnson Associates. Keep in mind that record compensation would be one dollar more than what was paid out last year, and the percentage increase in compensation is expected to plummet.
One of the people predicting a real slow-down is Jim Cramer, who states in his latest New York Magazine column that:

In the past half-dozen years, the major brokerages in New York added hundreds of thousands of jobs in three areas: mortgage-bond sales and trading, private equity, and prime brokerage (the management of hedge funds’ brokerage accounts). Each has grown by leaps and bounds each year. Now all three are frozen. There are no mortgages to package and sell and no clients who want them. The private-equity deals are all hung. And the way I see it, the hedge-fund business is liable to be cut in half by the chain of mismarking and redemptions. I think that many of these firms have as many as 30 percent more people than they need right now in these departments, and all of them will be cashiered by the end of the year. The lists are being drawn up; the HR people notified. Not too close to the holidays, please! And for those who are left, sorry, no bonuses. The money was all eaten up by severances. Unlike other times on Wall Street, the jobs will dry up across the board, because so many firms have beefed up the same divisions. This time, get laid off at Bear, no walking across the street to Lehman. The departed will be cut off from billions in disposable income that fuel the New York economy.

A little dramatic, but Cramer does have a few good points. There is less pressure on Wall Street firms to dramatically up the ante by doling out big bucks. Since a record number of Big Hitters was reached in June after a record round of hiring, there isn’t much pressure on the Street to recruit, or for firms to differentiate themselves with comp. In fact, it’s the opposite. You’re stuck at the party, and if you haven’t received an invite, you’re unlikely to crash, as hiring freezes are in effect at a number of firms.
Getting laid off, or *only* getting a bonus in the low six-figures is better than losing your roof, or displacing a whole chunk of SoCal. Here’s Cramer again, pulling an opposite Robin Williams (“it is your fault…it is your fault”):

I fear that the pain and contractions in the housing and credit markets could cause as many as 7 million homeowners who bought houses in the past few years to flee or be tossed from their dwellings, even if the rest of the stock market thrives. It’s why I went off the reservation and screamed about this problem on television the other day (my latest unhinged rant). I see what could go wrong. I see how the forgotten man gets forgotten, and I feel helpless because I don’t see anyone doing a whole hell of a lot about it.

Sure Tom Joad may have overstated his income by just a smidge and not read his credit agreement to begin with (it didn’t hurt that Rosasharn was the loan offier), but if nothing else, you should carry the guilt of his impending trip back to the dust bowl with you.
Bloody and Bloodier [New York Magazine]

On July 17, a device containing confidential employee information, including yours (if you have an at ml dot come e-mail address), was reported stolen from a Merrill Lynch office. It remains at large. Today, someone from ML IT informed the Lynchettes about this breach of security. The writer of the “Personal Information Security Alert” sounded empathetic, but not contrite, which makes sense, since he presumably was not the person who stole the device, and has nothing to apologize for, unless he did, in which case he’ll be looking at the business end of a hissy fit courtesy Stanley O’Neal in due time. OT!
The device contains names, social security numbers, ML identification numbers and compensation data. It does not contain home addresses or birthdays, so you will not be getting a “Look Who’s 40!” card from your identity thief.
Merrill states that it is actively investigating the problem, so much so that it was too busy to get around writing this email until almost three weeks after the fact. Merilll had pegged the chances of the data being compromised at “extremely remote” and weren’t going to say anything about it, but caught a late-viewing of Live Free or Die Hard and figured it’d be best to fess up. Just in case it’s the beginning of the fire sale.
Here it is, people: We’re offering $100 to whoever can find the device and deliver it to us, so that we might use the information within to blackmail certain Merrill employees who’ve late become thorns in our asses (no names, for now, but here’s a hint: this ML GWM employee once sparred in an alleyway with Carney after a tiff broke out regarding who was next on stage at an open mic night in Bayonne, not far from the office where the object in question was stolen, coincidentally). And also so we can update our bonus bumper.
Letter of regret, after the jump

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BonusBumper 2007: The Final Countdown

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Here’s the latest BonusBumper chart. Thanks UBS, for driving down the median. Bonus numbers are starting to roll in, and while there isn’t any speculation on whether bonuses are higher than the amounts listed, there is speculation that they may be a tad lower. It’s also possible that the majority of bonuses have diverged so far from the top that no one knows what the real top is anymore. It doesn’t help that that top analyst is usually a complete pain in the arse and the one person in your group who’s mum about the extent of that obscene lump sum.
Comment or send any bonus info to: tips at dealbreaker dot com

BonusBumper UPDATE: It’s about that time

The first round of banks are about to give bonus numbers for analysts. Here’s the latest BonusBumper chart. There still are a few notable absences – UBS, Credit Suisse, Lazard and SUNTRUST. Also if anyone has any info on bonuses of analysts in equity research groups, send it to – tips at dealbreaker dot com.
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BonusBumer UPDATE

Latest bonus charts, now with 100% more RBC Capital Markets. The median bonus has risen a full $5k per year since the BonusBumer exercise began – so keep emailing in and pressuring staffers to bump those bonuses! Send info to : tips at dealbreaker dot com.
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