Wall Street bonuses could soar more than 20 percent this year amid record profit, but that doesn’t mean everyone will be happy.
There are bound to be hurt feelings, bouts of jealousy and sudden departures after the bonus pie is sliced up.
Expectations are sky high, and Wall Street is battling to dampen enthusiasm to keep emotions in check.
Through the first three quarters, combined net earnings have surged 61 percent to $29.73 billion at leading Wall Street investment banks JPMorgan Chase & Co., Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., and Lehman Brothers Holdings Inc..
Wall Street’s calculus of who gets what and how much can cast a pall on what’s supposed to be an occasion for revelry. Investment banks typically award bonuses between December and February, after completing their fiscal year.
“Yes, bonus discussions can get pretty ugly,” Wall Street veteran Mark Davis, managing director of investment banking at Gleacher Partners, said at the Reuters Investment Banking Summit in New York.
Before joining the boutique investment firm in May, Davis was chairman of JPMorgan Chase & Co.’s mergers and acquisitions group.
“You are talking about a world where people can make $1 million; they can make $5 million; they can make $10 million,” Davis said. “And other than $100,000 to $250,000, all of that is paid in one day. There is very little that is similar to this one-day reckoning system.”
A Reuters poll of a dozen Wall Street veterans and recruitment firm executives indicates that employees should see bonus increases anywhere from 10 percent to 25 percent for their work in 2006.
Not all employees are equal, though, in the bonus pecking order. Sometimes bonus pools dry up before trickling down.
Chief executives and chief financial officers at leading investment banks will get bonuses that rival the paydays of superstar athletes. Lehman Brothers Chairman and Chief Executive Richard Fuld Jr., for example, received a $13.75 million cash bonus for his work in 2005. Pay consultants at Johnson Associates Inc. said 2006 pay for top senior executives could increase 15 percent.
Investment bankers who have strong relationships with top private equity firms will see bonuses between $5 million and $10 million, according to one recruitment firm executive. In 2007, their compensation could climb another 20 percent, Johnson Associates said.
The fixed-income specialists who trade, structure and analyze collateralized debt obligations will also likely see record bonuses, said John Carter, a vice president at New York fixed-income recruiter The Hagan-Ricci Group.
He said some fixed-income shops are offering their people two-year minimum bonus guarantees to retain talent.
Quantitative people skilled at debt structuring are also in short supply, said Burke St. John, global head of financial services at recruiter Christian & Timbers.
An investment bank vice president who graduated from business school in 2002 might rake in $450,000 to $650,000 in bonus pay, according to a recruitment firm executive who didn’t want to be named.
Viswas Raghavan, JPMorgan’s head of debt and equity capital markets outside of the Americas, said this week at the Reuters Investment Banking Summit in London that a lot of people are getting carried away with what they think their bonus will be.
Those big expectations are what give senior managers big-time headaches.
“Bonus season is a high stress time and part of the reason management on Wall Street is so difficult is that the management of that process is very, very difficult,” Davis said.