Even when Wall Street is down, the bond sellers and other revenue producers still have to get paid. For 2008, though, financial-services firms are expected to decrease bonus pools by 40 percent to 50 percent from last year. Since the bonus represents the vast majority of annual income for most of the firms’ thousands of employees from lower middle management on up, these people will see their earnings slashed roughly in half.
“It is going to be a terrible pay year,” says Alan Johnson, managing director of Johnson Associates in New York, a compensation-consulting firm that specializes in financial-services firms. The industry is in a normal cyclical trough that has been severely compounded by the credit crisis, he notes.
Still, the level of pay decline won’t be much or any worse than was seen during other shaky financial times in recent memory, such as the early 1990s and 2002–2003, according to Johnson.
But his clients are saying that 2009 is not expected to be much better. “It isn’t that pay is going to drop a lot, then make a sharp quick rebound. Nobody believes that,” says Johnson.
While the firms will continue to reduce head count, some people likely will leave voluntarily after getting their bonus following the first quarter of next year. “This is a grinding business, and if pay drops a lot, people will reassess.”
Solid producers at Lehman Brothers and Merrill Lynch at least will be able to continue with their job at Barclay’s and Bank of America, respectively, and hope the credit markets and pay prospects pick up. That goes too for the approximately half of Bear Stearns managers who were absorbed by JPMorgan Chase.
Those who were let go are in a bind. Someone who made $1 million total at Bear Stearns in 2007 and was shown the door in March probably departed with about $100,000 to $150,000 in severance and bonus combined, according to Johnson. Meanwhile, senior executives at the financial firms likely will fare even more poorly than their subordinates: many will get very small or no bonuses, he says.