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发帖数: 4704 | 1 Wall Street Said to Weigh Freezing Pay Bumps for Junior Bankers 2012-01-10
01:00:00.0 GMT
By Jeffrey McCracken and Christine Harper
Jan. 10 (Bloomberg) -- Wall Street’s biggest firms, facing a slump in
investment-banking revenue, are considering freezing compensation levels for
some junior bankers, according to people familiar with the deliberations.
Credit Suisse Group AG is likely to suspend its practice, an industry
norm, of boosting pay automatically each year for analysts, associates and
vice presidents within the investment- banking division, a person with
direct knowledge of the decision said. While those employees will get their
regular annual salary increases, bonuses probably will be lowered to keep
total pay flat from a year earlier, said the person, who requested anonymity
because the plan isn’t public.
Goldman Sachs Group Inc. and JPMorgan Chase & Co. are being watched by
competitors for signs the companies are planning similar moves, said people
at four other firms. Cutting pay can be perilous if your rivals don’t
because it’s easier for junior bankers to defect, draining a future
generation of talent. Wall Street firms may make the change en masse only if
one or more of their biggest rivals act first, the people said.
“There’s always the risk that people may go across the street for a
better deal,” said Joseph Sorrentino, a managing director in New York at
Steven Hall & Partners, an executive- compensation consultancy. Among junior
bankers “you have some potential future stars and you want to make sure
you keep them engaged and keep them happy and performing.”
JPMorgan, which doesn’t plan to alter its practices, may change course
if other firms do so, a person briefed on its decisions said.
Starting Salaries
Base pay for junior bankers typically increases automatically by about
15 percent to 20 percent, akin to a unionized salary scale, as they work a
year and move up a so- called class. Younger bankers, who typically comprise
about 75 percent of the investment-banking workforce of the biggest Wall
Street firms, often start with a $200,000 annual salary and can expect $240,
000 or $250,000 in the second year, said two senior bankers.
JPMorgan’s investment bank, which includes equity and fixed-income
trading, had 26,615 employees as of Sept. 30.
Goldman Sachs, with 34,200 employees, doesn’t break out how many work in
each division.
A banker typically spends three to four years as an associate and then
three years as a vice president before he can be named director. Top-
producing vice presidents in their third year, sometimes called a VP-3,
could get $600,000 to $700,000 in total compensation, said a senior Wall
Street banker.
Top Tier
At Deutsche Bank AG, senior executives are evaluating whether to cut or
freeze pay for the top tier of vice presidents as a way to pare all junior-
banker pay, said a person familiar with the matter.
Jennifer Zuccarelli, a spokeswoman for JPMorgan, declined to comment,
as did Lucas van Praag at Goldman Sachs, Victoria Harmon at Zurich-based
Credit Suisse and John Gallagher at Deutsche Bank, based in Frankfurt.
JPMorgan and Goldman Sachs are both based in New York.
The review of junior-banker pay focuses on investment- banking
divisions and not lower-level employees in equity or fixed-income trading
departments, the people said.
Associate compensation continued to rise in the wake of the financial
crisis, the executives said. Starting pay for each position also increased,
so a first-year associate job that paid $200,000 a year rose to $210,000 for
the next person to fill the slot. With compensation pools down this year at
almost all Wall Street banks, climbing associate pay has caused a squeeze
on pay for senior managers, said a banker involved in such decisions.
More Transparent
Pay among junior bankers tends to be more transparent and aligned with
peers at competing firms than it is for senior bankers, the people said,
partly because the newest employees still talk with former classmates. Word
of lower entry-level pay at one bank can hinder recruiting at top business
schools, which is why the biggest banks rarely consider such pay freezes.
A plunge in trading revenue last year, stagnating economic growth and
Europe’s sovereign-debt crisis have forced Wall Street’s most senior
bankers to rethink their pay practices as they seek to cut costs. Part of
the calculus is determining whether the downturn in bank profits represents
a permanent shift or a temporary phenomenon tied to the 2008 financial
crisis and recession.
Compensation at the biggest banks may fall 20 percent to 60 percent
this year, depending on the firm and the job, senior bankers said. Mergers-
and-acquisitions bankers may face pay cuts at the lower end of that range
and those in fixed income or trading could see higher reductions, senior
bankers said.
Dimmed Prospects
Most of the biggest U.S. banks will inform employees about bonuses and
compensation at the end of this month. Bank of America Corp., for example,
will tell employees their compensation starting Jan. 26, said a person
familiar with the matter. The new pay rates typically take effect in
February.
Goldman Sachs and Morgan Stanley, the major U.S. banks most reliant on
trading, had their earnings estimates cut this month as a weak fourth
quarter dimmed prospects for a capital-markets rebound in the first half of
2012.
JPMorgan Cazenove analysts led by Kian Abouhossein cut earnings
outlooks for investment banks for 2011, 2012 and 2013, citing worsening
conditions in fixed income and equities. In a Jan. 6 note to clients, the
analysts lowered their Goldman Sachs
2012 earnings estimate by 19 percent and Morgan Stanley’s figure by 17
percent.
Investment-banking and trading revenue probably has dropped in each of
the past two years. In 2011, global stock offerings plunged 29 percent from
2010 and U.S. bond issuance fell 6.7 percent as companies delayed plans to
raise capital, according to data compiled by Bloomberg.
Final Decisions
Fixed-income trading revenue at U.S. banks may fall 12 percent from the
third quarter, minus accounting adjustments, while equities drop 10 percent
and investment-bank revenue remains unchanged, David Trone, an analyst at
JMP Securities, wrote in a Dec. 16 report.
Some large European banks won’t make final decisions on bonuses and
compensation until early next month, allowing them to tweak plans based on
what their rivals determine in January, executives at those firms said.
Pay increases have traditionally been automatic because “there are
traditionally very long hours in terms of the amount of work and this is
another way to try to boost their morale and signify that they’re a strong
part of the firm and that they’re appreciated,” said Steven Hall’s
Sorrentino.
Deutsche Bank won’t announce internally in North America its bonus and
compensation decisions until at least the first week of February, said a
person familiar with the matter, who predicted bonuses to be down there 30
percent to 50 percent.
Barclays Capital, a unit of London-based Barclays Plc, is likely to hold off
until the second or third week of February, a person familiar with the
matter said.
Kerrie-Ann Cohen, a Barclays Capital spokeswoman, declined to comment.
--With assistance from Dawn Kopecki in New York. Editors: Peter Eichenbaum,
Steve Dickson
To contact the reporters on this story:
Jeffrey McCracken in New York at +212-617-8517 or j********[email protected];
Christine Harper in New York at +1-212-617-5983 or c*****[email protected]
To contact the editors responsible for this story:
Jennifer Sondag at +1-212-617-2716 or
j*****[email protected];
David Scheer at +212-617-2358 or
d*****[email protected] |
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