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]