While the world waits to hear who will get what out of Goldman Sachs’s $16.2 billion bonus pool, a recent survey of financial-services professionals shows the variation in individual bonus amounts is growing.
In general, more Wall Street professionals are getting bonuses for 2009 than did for 2008 — 92% of all respondents for last year compared with 79% the year before — according to the survey of about 850 registered users of eFinancialCareers, a career site for the financial-services community. That’s hardly surprising given the record results at most firms, says John Benson, CEO of eFinancialCareers. Employees at investment banks generally received the biggest payouts, with those at private-equity and venture-capital firms coming in next and those at fund managers (including hedge funds) coming in third.
Notably, the 46% of respondents who reported getting bigger bonuses this year saw them double in size from the previous year, on average, while the 31% who got smaller bonuses saw them cut in half. While the survey didn’t track any employee-performance metrics or compare results within firms, Benson reads the data as an indication that firms are differentiating their payouts more sharply based on employee accomplishments.
“What you’re seeing is true pay for performance, writ large in these bonuses,” says Benson. “Banks are very keen to make sure they hang on to the rainmakers, the star performers.”
Indeed, “firms have gotten much better at differentiating the good and the greats and the so-sos,” says Alan Johnson, managing director of Johnson Associates, a New York–based compensation-consulting firm. With the bonus pool being a large part of total compensation in the financial-services industry in particular, “the firms try to avoid spreading it evenly, like peanut butter,” he says.
Technology has provided a big boost in making that differentiation possible, Johnson notes. The rating and ranking of employees “has always been intensive, but firms have gotten more sophisticated and efficient about how they get inputs,” he says, using software to help gather feedback and sort through it.
To be sure, experts say the public anger against Wall Street and the political climate the anger has created have had an impact. “The results were better, so bonuses were going to go up in any event, but did they go up as much as they might have otherwise? Probably not,” says Johnson.
Goldman’s delay in announcing CEO Lloyd Blankfein’s bonus is likely a reaction to the political pressure it faces around such compensation. (Citigroup has also delayed announcing its top executives’ bonuses.) “You’ve seen a number of banks [waiting because they are] keen to see what other banks are doing, responding to the political environment,” says Benson.
The structure of Wall Street bonuses has also changed significantly, tilting more heavily toward stock, with the intent of encouraging executives to manage for the long term. Goldman has said that bonuses for its top 30 executives would be in deferred stock only, and press reports citing an unnamed source have said that other bonuses will be 60% stock and 40% cash. At Morgan Stanley, new CEO James Gorman received an $8.11 million bonus in deferred stock and an unspecified amount in deferred cash after the company announced one of the first compensation clawback provisions last year. Citigroup CEO Vikram Pandit has vowed to take no bonus until the company becomes profitable.
The eFinancialCareers poll asked respondents how they felt about varying levels of stock versus cash in their bonus. Thirty-nine percent said the amount of stock would not influence their decision to leave their current job, while 17% said they would leave if stock was 30% of the bonus and 22% said they would go if it was 50% of the bonus. Only 2% of respondents said that stock was already 30% or more of their bonus.
The changes in 2009 bonuses are likely not the end of the story. “The realignment of Wall Street compensation is not yet over,” says Benson. “I think we’ll continue to see the structure of how firms pay individuals evolve over time.”