Hey, guys, it's Bonus Week on Wall Street! So why is everybody all sad and anxious?
I'm old enough to remember when this was a happy time, a time for buying Aston Martins and Hyde Park condos. And then came the Crisis, that unforeseeable Act of God. Suddenly, even if that whole financial-meltdown thing had nothing to do with them, the pay of everybody on Wall Street was getting the stinkeye from regulators and politicians and protesters. Sometimes even shareholders.
And so Wall Street pay is sloooowly getting squeezed. Even Goldman Sachs -- where "people are feeling pretty good about bonuses," according to Susanne Craig of the New York Times -- paid the lowest percentage of its revenue in compensation since the crisis year of 2009 and the second-lowest percentage since it went public, according to the Wall Street Journal's David Benoit.
Over at Morgan Stanley, the Goofus to Goldman's Gallant, things are even grimmer. Instead of piles of cash, the bank's bonuses for high earners this year will be in the form of IOUs, report Aaron Lucchetti and Brett Philbin at the WSJ. Whatever figure is scrawled on their IOUs will be doled out to them in annual installments through 2016. Jump ship for a hedge fund, and you lose some of your bonus. What is this, some kind of socialist scheme to make compensation less of an incentive for insane risk-taking? Yes, in fact, it is. Third prize is you're fired.
Who knows, maybe that means fewer crises in the future. At the moment, all anybody on Wall Street cares about, a day before bonus "communication day" on Thursday, is: Will our bank pull a Morgan Stanley? CNBC's Bob Pisani writes: "The worry is that the new Morgan Stanley compensation package -- based on deferred pay, essentially an IOU -- will become the standard for the rest of Wall Street." Pisani points out that the typical bonus is shrinking fast:
Traders made as much at 60 percent to 70 percent of their overall pay from bonuses. Now, the figure is down -- way down. Let's say you make $250,000 in pay, plus a $250,000 bonus. Of that bonus, you make a third this year, a third next year, and a third in 2015. If you leave before that, you will likely lose it.
Asking a trader to live on somewhat less than $500,000 per year is like asking Jamie Dimon to live on just $11.5 million per year. It's a real shock to the system.
At least the harrowing experience of finding out how relatively lame your bonus is going to be just got a lot easier, thanks to a new app, Banker's Bonus 2013. Bankers submit their bonuses to the app, which costs $11.99, and find out where they rank among their peers.
It does not appear to adjust for the wounded pride of an IOU.