Wall Street Salaries Rising
So I'm still banging away on research towards a piece on Wall Street employment and compensation. But I'm going to steal a little of my own thunder to get info to you in a timely way. I have had some recent conversations with friends from the street and what I am being told is now being confirmed in a Bloomberg article entitled "CitiGroup Plans to Raise Salaries by as Much as 50%":
Citigroup Inc., the U.S. bank that got $45 billion of government funds, will raise base salaries by as much as 50 percent to help compensate for a reduction in annual bonuses, a person familiar with the plan said.No you are not hallucinating. Due to the restrictions on compensation for those banks accepting TARP funds, banks and brokers are raising salaries in order to hold onto their employees who will no longer be receiving large year-end bonuses.The biggest increases will go to investment bankers and traders, said the person who declined to be identified. Workers in consumer banking, credit cards, legal and risk management will see smaller salary adjustments.
One friend of mine told me that "The sell side is raising salaries (to retain people and because "bonus" is a 4-letter word so that's a way around it." According to the Bloomberg article, C "will raise base salaries by as much as 50 percent to help compensate for a reduction in annual bonuses." Bloomberg goes on to list Morgan Stanley and UBS as firms that have already boosted salaries. I am told by additional contacts that other banks are following, Bloomberg mentions B of A as well.
I am told that hedge funds in general continue to reduce headcount and that high water marks that have not been exceeded will significantly impact bonus pools.
The net of these trends is a positive for lower value residential real estate, which Wall Streeters will feel comfortable buying, but tough on those multi-million dollar penthouses, which will be out of reach for many.
This is NOT wage inflation, this is a substitution of a small increase in base pay to replace potentially large bonuses. Also, it increases banks' fixed costs but reduces variable cost growth in booming times. Not a great recipe for bolstering banks' bottom line should tough times return. While it is unclear the extent of the limitations on employee compensation will be after regulatory reform, it is likely that we are moving from a 'multiple of salary' bonus environment to one where employees will get a percentage of their salary in compensation. Net net, it seems to me that overall compensation is clearly going down.
I'm a bit verklempt. Talk amongst yourselves. Here, Ill give you a topic. A wall street bonus is neither a wall or a street...discuss!
Comments (8)
The headline sounds sensational, but in reality we talk about "comp" (compensation as in salary + bonus), not salary, in finance.
In theory, higher salaries and lower bonuses will reduce a firm's ability to scale back on pay in tough times, but in reality, this is not the case. A guy getting multiple "units" ($1M) each year while only making $200k in base salary (a typical maximum at large firms) will never see his bonus come in at zero, regardless if the $1B in paper profits he booked the year before lost $1B this year. A firm I worked at during the .com bust did actually try this and a couple of guys were put on the brink of bankruptcy- and had to ask the firm to help them out, I don't know to what extent the firm did. Last I knew at C, 200K was the maximum base salary, whether you were an MD or a janitor, so we are talking about a 100k increase at most. This shouldn't effect earnings.
-Kevin
Posted by Kevin | June 24, 2009 11:52 AM
As you clearly state in your article, upon receiving a bump in base salary, my colleague was told "yes, you are receiving a bump in base, but your overall compensation will be down considerably from the previous year."
Better visibility into personal earnings does not make one feel wealthy.
Posted by Wallstreeter | June 24, 2009 11:52 AM
i think a clear point of all this, for this site anyway, is how this will affect the high end market here in Manhattan, considering the new world, the destruction of wealth, and the boom in prices that ended with the credit/housing bust.
5M and above. Less of an effect on 3-5M, but an effect nonetheless.
That is a topic for another day. Remove those extravagant bonuses for higher base pay, and affording a $7M pad changes very quickly.
Posted by Noah | June 24, 2009 11:59 AM
Slightly off topic but there is another CLE event being offered by the NYC Bar re: compliance changes in OTC and normal (exchange) trading. Also bankruptcy practitioners will be there.
I was at the last event sometime in March and recommend it as a knowledgeable forum of people.
https://www.nycbar.org/CLE/show_course.php?cnameid=2074
Posted by In Debt We Trust | June 24, 2009 1:06 PM
For someone who works on Wall Street like myself this is actually a very bad development. Total comp is going down and staying down.
Posted by LP | June 24, 2009 4:05 PM
How will this affect the $2-$3 million market (coop on UES) which is the market I am looking at?
Posted by Potential Buyer | June 25, 2009 4:45 PM
Potential Buyer:
This is just a red herring of information. Right now prices are simply a proxy for low interest rates. The spring plateau was due to an artifical 4.75% rate the the government made available as long as it could. People who bought Upper East Side coops and condos were really just buying money at a cheap rate using the home purchase as the foil.
As rates continue to rise, there will be a second wave of price reductions and another plateau.
You decide what is right for you - to buy a home at these relatively low rates even though prices will continue to fall, or to wait for prices to fall further knowing that your cost of financing will be higher.
As far as co-ops go, which generally have financing limitations, you should consider waiting until nominal prices have bottomed since you may not be able to take full advantage of the cheap cost of money.
Posted by Out there looking | June 26, 2009 9:46 AM
This is just a red herring of information. Right now prices are simply a proxy for low interest rates. The spring plateau was due to an artifical 4.75% rate the the government made available as long as it could. People who bought Upper East Side coops and condos were really just buying money at a cheap rate using the home purchase as the foil.
agree with you
Posted by Ativan | October 31, 2009 6:47 AM