By Christine Harper
November 6 2008
The most senior executives at Wall Street firms will have their bonuses slashed by as much as 70 percent, more than other employees, amid falling revenue and political pressure, according to a report by Johnson Associates.
The executives whose pay is disclosed in public filings will have the steepest reductions, while bonuses for other workers will drop by between 10 percent and 45 percent this year. Rewards are likely to decline even more in 2009 as business slows further, said Alan Johnson, managing director of Johnson Associates, a compensation consulting firm.
A $700 billion government bailout of the financial industry has led to calls from politicians including New York Attorney General Andrew Cuomo and Rep. Henry Waxman, a California Democrat, for companies such as Goldman Sachs Group Inc. and Morgan Stanley to justify year-end rewards. That’s likely to reduce pay for senior executives whose compensation is disclosed in proxy filings by more than for other workers, Johnson said.
“The pressure from the politicians is intense,” said Johnson, whose firm is based in New York. “You’re going to be treated worse if you’re in the proxy.”
Goldman, which converted in September into the fourth- biggest bank holding company from the largest U.S. securities firm, said in its proxy filing this year that Chief Executive Officer Lloyd Blankfein received a 2007 bonus of $67.9 million and that Co-Presidents Jon Winkelried and Gary Cohn each received $66.9 million. Last month, Goldman received $10 billion as part of the government’s $700 billion bailout.
This year, banking executives will “get almost no cash and most of any incentive they get is going to get paid in either restricted stock or options,” Johnson said. “It isn’t going to be such a good deal to be in proxy statements. I think it’s going to be a firestorm.”
For workers whose compensation isn’t disclosed, Johnson estimates that investment bankers and employees in the fixed- income departments will have bonuses reduced between 35 percent and 45 percent this year. People who work in prime brokerage departments will have their year-end awards cut by 15 percent to 20 percent, the report estimates.
“However, thanks in part to the financial bailouts and mergers we’ve seen recently, the decline in incentive payments won’t be as drastic as first thought,” Johnson said in the report.
The decline in bonuses won’t be that different from reductions seen in previous industry downturns such as in 2001, Johnson said. “What’s made it really hard on the industry is that pay is down in ’08 and it’s likely to be down in ’09 as well,” he said.
Following is an estimate of the size of bonus reductions this year in different business areas of the financial industry:
Business Area Decline in 2008 from 2007 Management Disclosed in Proxy 60% - 70% Fixed Income 40% - 45% Investment Banking 35% - 45% Hedge Funds 25% - 35% Private Equity 25% - 35% Corporate Staff 20% - 30% Equities 20% - 25% Asset Management 20% - 25% Commercial Banking 20% - 25% Retail Banking 20% - 25% Prime Brokerage 15% - 20% High Net Worth Advisers 10% - 15% Source: Johnson Associates Source Their bonuses were too large anyway. I also think they were over paid for the work they did. After all their banks did bottom out. Not very good at their jobs. Are they really worth the pay they get? One has to wonder. They won't get a pity party from me. That is for sure. Anyone else feel sorry for the poor, sad, sops?