Five straight quarters of losses and a 70 percent slide in its stock this year haven’t stopped Merrill Lynch & Co. from allocating about $6.7 billion for bonuses.
Goldman Sachs Group Inc. and Morgan Stanley, both still on track for profitable years, set aside a combined $13 billion for bonuses during the first three quarters of the year, 28 percent less than in the comparable period in 2007. Even at Lehman Brothers Holdings Inc., which declared the biggest bankruptcy in U.S. history last month, some employees will get the same bonus they received a year ago.
The worst financial crisis since the Great Depression, a $700 billion taxpayer bailout, public outcry over excessive pay and the demise of three of the biggest securities firms won’t deter Wall Street from offering year-end rewards to employees on top of their salaries, compensation experts say.
“Critical producers and critical managers will be retained with the same bonus they had last year,” said Robert Sloan, head of U.S. financial-services recruiting at Egon Zehnder International, a New York-based executive-search firm. “The others will see sharp cuts.”
The figures are based on estimates that about 60 percent of reported expense for compensation and benefits will be paid in year-end bonuses, as occurred in past years. Average bonuses aren’t an indication of how much any employee will receive, because payments range widely from assistants to top traders. Because bonuses are paid at the end of the fiscal year, firms could choose to reallocate the funds.
“We are in the process of determining appropriate levels of year-end compensation, and no decisions have been made,” said Mark Lake, a spokesman at Morgan Stanley. Ed Canaday, a spokesman for Goldman in New York, declined to comment.
Merrill spokeswoman Jessica Oppenheim said the firm’s accrued bonuses aren’t down as much as those at Goldman and Morgan Stanley because the firm reduced expenses last year, when it also had a loss. Compensation costs are down 18 percent this year, compared with the first nine months of 2006, Merrill’s last profitable year.
Goldman, the biggest and most profitable Wall Street firm until it opted to become a bank holding company last month, has set aside about $6.85 billion for bonuses, or an average of $210,300 for each employee, down 38 percent from $339,400 a year ago. Morgan Stanley, the second-biggest securities firm until it also converted to a bank, has $6.44 billion for bonuses, or $138,700 per person, down 20 percent from last year. Both firms accrue a fixed percentage of their revenue for compensation, so the decline in bonus pools matches the drop in revenue.
The money that Merrill has set aside for bonuses equates to an average of $110,000 for each of its 60,900 people. That’s up from $108,000 a year ago because more than 3,000 jobs have been cut.
A worldwide economic slowdown, caused in part by the financial industry’s losses, and a U.S. Treasury plan to spend $250 billion of taxpayer money buying stakes in banks, have made pay a political issue this year.
“There should be a moratorium on bonuses,” Rep. Barney Frank, chairman of the House Financial Services Committee, told reporters last week. “If nobody gave them, there wouldn’t be a competitive aspect.”
New York-based Goldman, Morgan Stanley, Merrill, Lehman and Bear Stearns Cos. awarded their employees a cumulative $145 billion in bonuses from 2003 through 2007, according to estimates based on company reports. That’s more than the annual gross domestic product of the Philippines. Last year, the firms paid out a record $39 billion.