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If the Bonus Season Made a Fashion Statement, Color it Gray

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Let’s face it. The forecast for this year’s bonus season is down right gloomy. And judging by eFinancialCareers most recent survey on the subject, most financial professionals were not surprised.

Like we do every year around this time, eFinancialCareers took a look at the year-end payouts that begin in December and last on through February by surveying Wall Street professionals who are bonus-eligible and know the amount of their annual bonus.

Nearly half (45%) of those more than 1,000 financial markets professionals surveyed said their bonus met their expectations while 1 in 10 (11%) said they did better with their bonus than they expected.

In fact, only just over a third (35%), said they were disappointed and indicated their payout had missed their expectations. And it is these unhappy souls about which Wall Street firms are most concerned.

Our research found that 1 in 3 (32%) of those who were disappointed had actually performed well, and saw their bonuses rise year over year. They just didn’t rise nearly enough as far as these star employees were concerned.

Part of this disappointment was obviously due to their company’s overall performance and a number of Wall Street firms saw revenues plummet, especially in their investment banking divisions.

Some firms, such as UBS, have slashed investment-banking bonuses by 60% this year. The head of UBS investment banking didn’t receive any bonus at all, but then why should he, if the unit lost money following a trading scandal last September that cost the bank $2.3 billion. Goldman Sachs has cut bonuses in half for its star performers, but then it saw earnings fall 58%.

“It’s hard to overcome firm performance with personal performance in the yin and yang of pay for performance culture,” said Constance Melrose, Managing Director, eFinancialCareers, North America. “Firms loathe losing top performers, and approach every bonus season concerned that murmurs of dissatisfaction escalate.”

This year we saw a shift upward in the earnings levels of this disappointed group to include financial markets professionals whose salaries top $200,000. Last year’s discouraged group registered lower salary levels.


“Every professional working on Wall Street has a number,” said Ms. Melrose. “Sometimes the number is long-term such as how much do I need to make before retirement, but there’s an annual number too—a useful marker of professional value to your current employer.”

The survey was conducted from January 2 to January 16 and drew responses from front-office and support staff at investment and commercial banks, hedge funds, and asset managers. The tally was limited to people who had already been informed of their awards.

Because of all the layoffs taking place, some firms may not be afraid of retaining their disappointed rainmakers. Morgan Stanley CEO James Gorman is famously quoted as chiding his bankers to stop whining about their slashed bonuses and that if they’re not happy they should just leave.

“It doesn’t pay to underestimate the moxie and ingenuity of financial markets professionals in finding the path to maximizing opportunity,” said Ms. Melrose. “No one wants to hear about the ten-bagger they let get away.”

Combine the euro-zone crisis, the skyrocketing US debt and an uncertain global economy, and the near term future for investment banking doesn’t look too promising.

A cover story on New York magazine went so far as to describe this year’s bonus season as “The End of Wall Street as They Knew It.” The accompanying article goes on to say “the masters of the universe have had their bonuses slashed due to the suffering economy and the provisions of the Dodd-Frank financial reform legislation. The industry also cut 200,000 jobs. Where’s a young, mathematically inclined valedictorian to turn?"

The story then quotes a hedge fund executive as saying “If you’re a smart PhD from MIT, you’d never go to Wall Street now. You’d go to Silicon Valley. There’s at least a prospect for a huge gain. You’d have the potential to be the next Mark Zuckerberg. It looks like he has a lot more fun.”

Fun is not a word being used to describe the atmosphere with employees in the financial markets who have seen their bonuses capped, slashed, and deferred. Investment bankers appear to be getting hit the hardest.

Among some of the banks cutting compensation for investment bankers are Barclays, Deutsche Bank, Morgan Stanley, Bank of America/Merrill Lynch, and Lazard with cuts ranging from 30% to 10%.

Many of these banks also instituted caps and are deferring bonuses.  Deutsche Bank will defer any part of an employee's bonus above $264,800 this year. Any staff with a bonus at or below that would receive half of their bonus in cash, and half of it restricted stock that they couldn’t sell until August, according to Bloomberg. Bank of America is also expected to give shares instead of cash as part of bonuses.

Morgan Stanley was one of the first of the big banks to initiate a deferred bonus program, which brought praise from Sanford C. Bernstein & Co. analyst Brad Hintz. Hintz, who, we should point out, was a former treasurer for Morgan Stanley said, “it makes economic sense to defer if management anticipates a rebound in revenue, which allows the expenses to catch up and deferred and current costs to be paid off without damaging earnings and thus the share price.”  

If you were expecting to get your bonus in cash, you probably shouldn’t be working at a bulge-bracket bank, many of which paid out most of their bonuses in stock and stock options, which certain restrictions. Boutique firms and hedge funds on the other hand reportedly paid on average a higher portion of their bonuses in unrestricted cash.

“Managing compensation expectations is one of Wall Street’s premier arts,” said Ms. Melrose. The key is communications, to let employees know as early as possible what to expect in terms of bonuses so they aren’t disappointed when the firm’s numbers don’t reflect the hard work they’ve put in.

–Fred Yager, Editor, eFinancialCareers.com, North America

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