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Honey, They Shrunk My Bonus
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It's an election year though. So don't bet on this occurring next year.

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LOL! Yea the banking business is broken too, but banksters usually figure out a way of paying themselves. CDO'S only appeared to be profitable back in 2007

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rs,
- Banks have to hold more capital now for the same balance sheet, which mean they will not be able to leverage as much. This, in addition to higher regulatory cost, will translate into lower comp. My guess is average total comp down 10-30% going forward depending on how much money you made.
- If you made more than $5mm total comp, down 30-50%. Top ten people used to get $20-50mm per year. Now it will be more like $10-20mm.
- More of this comp is deferred but it does vest. This means 2012 will have some cash crunch but come 2013, large amounts of stock granted this year will start to vest. People should not forget that even in 2012, the stock granted from previous year's is vesting and the bank stock prices are higher.
- Bankers just have to delay gratification, and not have crazy expenses like the 4-5 household staff the article mentions. In any case, very few banker had that level of expenses. Most people get a nanny, if wife works full time, and a cleaning lady once a week.

Mercer, you think comp at banks is going down another 10-30% going forward even after the 30% drop last year?

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nada, no, not after last year on an average. Flat to up on last year. I meant 10-30% from 2005-2007 average. This is in nominal terms.

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apt23,
- The big pot has reduced 10-30% from the boom years. Bank stock price increase will not make up for the reduction.
- However, without this reduction, the price of real estate would be increasing at a min 5-7% per year. Lower bonuses are likely to keep the real estate flattish in real terms. Just my take. This is a bearish board, so I expect most to disagree.
- Chinese and Russian buyers are wildcard. With Sandy Weil's sale to Russian purchaser of $90mm, it is hard to deny the existence of this money. I also know people who have gotten offers from Asian buyers without their property being on the market.
- The biggest reason for this inflow is Chinese and Russian wanting to park some money outside their country as they never know when their government will take away their money.
- Foreign buyers also explain why condos will remain at a premium to coops - keeping coops a far better deal for people who want to buy and live in their apartment.

brooks, you have no idea how bad times were in 2002. Just look at SPX levels. 2003 was a bit better but certainly no boom. The real high payouts were in 2005-2007.

It's not the bonus cut that has effect, is that so much of the remaining bonus is paid in deferred stock with no current visibility on future price. It has a chilling effect over discretionary spending.

"nada, no, not after last year on an average. Flat to up on last year. I meant 10-30% from 2005-2007 average. This is in nominal terms."

That seems overly optimistic -- the 10-30% vs. 2005-2007, that is. The average comp at GS, for example, was $600K between 2005-2006. Last year, it was $367K. That's a 40% drop nominally, closer to 50% in real terms.

Nada: Factor in the following into averages:
1. Top 50 people who were making $10-$50mm are being paid much less as I note in my post before. CEO is making 10-15mm instead of $50mm.
2. Significant hiring or employees in India and other locations where they make 50-100K per year.

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300_mercer, those words are well and fine, but I don't see how the numbers add up.

In 2006, GS total comp paid was $16.5B with about $2.5B going to partners averaging $8.6M (http://dealbook.nytimes.com/2007/02/13/for-goldmans-highest-echelon-a-salary-to-match/). That left $14B for the 26K non-partners, or $528K on average.

For 2011, total comp is $12.2B for 33.4K employees. The 400 partners are down to "just" ~$4.75M a head (http://online.wsj.com/article/SB10001424052970204331304577147750253122844.html), so $1.9B total. That leaves $10.3B for 33K non-partners, so a "mere" $312K a head.

So by those numbers, comp is down from $528K circa 2006 to $312K circa 2011 for GS non-partners, a 40% drop.

If you take out the 3K India employees and the $0.3B comp at $100K a head (they've got managing directors too), you're left with $10B and 30K employees. Nudges non-partner, non-Indian pay up to $333K. Still 37% below 2006's $528K.

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Check out this report. Overall industry wage drop not so bad. Figure 5. 2011 numbers are not in yet. 2010 numbers from what I tell tell include bonuses paid in early 2011. Assuming total average comp including deferred stock was down 20% for 2011 of $360K at $290k, still at 2005 levels, which was considered a good year. Reduced cash obviously is painful.

http://www.osc.state.ny.us/osdc/rpt12-2012.pdf

Why 20%? I thought 30% was the number most commonly being thrown around.

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kiss, BB article is mixing apples and oranges. Some percentages are bonuses others are total comp. nada, 30% number is generally related to bonuses not total comp including deferred stock.

Here's one guy's opinion about what 2012 holds:

http://www.ft.com/cms/s/0/3411936a-5e44-11e1-85f6-00144feabdc0.html#ixzz1nPac1FLD

“Investment banking compensation has come down significantly, but it’s likely to come down again next year,” says Tom Gosling, a partner at PwC in London. “As capital requirements put more pressure on ROE, banks can’t just rely on revenue recovery – with compensation being such a significant cost for banks, it is going to have to play its part in bridging the gap.”

The Financial Times has calculated that to achieve a 10 per cent ROE, Goldman, Morgan Stanley, UBS, Credit Suisse and RBS would have to find an additional £7.5bn worth of revenue gains or cost cuts between them.

That would mean setting aside a significantly lower proportion of revenues for pay. Again, to achieve a 10 per cent ROE, those five banks would have to bring their remuneration ratios to between 25 and 35 per cent, down significantly from the 40 to 60 per cent range seen in 2011.

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I gotta imagine the more junior bankers are looking at their comp down 10-20% and declaring it ain't all that bad, not like the 40% down seen by the senior bankers. What they're missing is that in the pyramid of banking comp, they should have been getting a bump of 10-20% in a normal year instead of a drop.

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What's the difference between a bonus and a p*nis? After 20 years of marriage, your wife will still blow your bonus.

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hburg, Thanks. I was just going to post this. We have to realize that financial services industry is far bigger than just the top banks and they are many people who make 300K all in with more than 10 years of experience whose total comp has not gone down as much. If these people have spouses, who make $150K or so, they can afford a basic 2 bedroom $1.3-1.5mm in New York.

Nada, what is your take on the numbers by Dinapoli. Frankly, they seem better than I thought.

I have no barometer other than the news reports and maybe a couple of people I know in banking, and all seem worse than 14%.

From DiNapoli's own press release:

http://www.osc.state.ny.us/press/video_press_releases/feb12/wallstreet_01.htm

"While a number of large firms announced reductions in cash bonuses for 2011 (with several firms reporting reductions in the range of 20 to 30 percent), personal income tax collections indicate a smaller decline in the overall cash bonus pool. This is likely due to the payment of bonuses that had been deferred from earlier years. "

You can also click on the link to the chart in the bottom. It shows bonus down from $34.3M in 2006 to $19.7M in 2011, $191K to $121K per head. Around a 40% drop, in line with GS's peak-to-current. Granted, that number does not account for higher base, but that offsets with the delayed payouts from past years.

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"We have to realize that financial services industry is far bigger than just the top banks and they are many people who make 300K all in with more than 10 years of experience whose total comp has not gone down as much."

I think that is exactly where the disconnect is coming from. You're looking at some guy making $350K in 2006 who now makes $300K, and you declare "all is fine" because it's "only" down 15%. What you are forgetting is that the increases for this person (to offset the ones leaving) were missing. Think of it as Wall Street comp's own version of inflation where flat is actually down.

In many industries, a 5% annual bump is pretty standard for a bread-and-butter employee. In banking, it has been more like 10% because of whatever (shorter careers, etc.). So that bread-and-butter employee was thinking he'd be rising from $350K to $550K but is instead looking at $300K. The superstar employees are on 25 % annual bumps, so story is the same there only with increasing numbers. How else do you get to GS partners with average tenures of 20 years at the firm making $8M?

Let me ask you this: before that nominal $300K employee took a drop, what pace was he/she increasing at over the previous years to get to that point?

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brooks2, for real estate prices, only time will tell. 2012 April SE index will be the first look. If the stock market continues to be at these levels, we may start to see increases very soon.

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