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Wall Street banks talking major pay cuts as profits drop

Oct 19, 2011 07:23 IST

#Bank of America   #Goldman Sachs   #JPMorgan Chase   #Wall Street   #WhyNow  

Goldman Sachs Group's bonuses are set to drop at least 20 percent this year and experts warn plunging revenue could push pay for the year even lower.

Across Wall Street, pay is sinking as securities issuance dries up and choppy markets cut into trading profits.

Alan Johnson, a Wall Street compensation consultant, said bonus declines could fall by 30 to 50 percent from last year.

"Ordinarily that would engender some level of sympathy," he said. "But with Occupy Wall Street going on, some people will think it should be even lower."

Across Wall Street, pay is sinking as securities issuance dries up and choppy markets cut into trading profits. Reuters

The Occupy Wall Street protesters have camped out several blocks away from Goldman's 2.1 million square-foot office in Lower Manhattan for the past month, decrying income inequality and bailouts for large banks.

During the first nine months of the year, Goldman set aside an average of $292,836 of pay per employee, down 21 percent from $370,706 for the same period last year.

But much of that pay was set aside in the first two quarters of the year. In the third quarter, the bank set aside just $46,000 per employee, down an eye-popping 57 percent from the same period last year.

As the largest US investment bank with the highest compensation rate among its peers, Goldman is often held up by critics as a sign of Wall Street excess. Many protesters say they are against the pay that goes to the top 1 percent in the United States.

But even last year, Goldman Sachs employees on average were not in the top 1 percent in the United States by pay. With recent declines, employees at the bank on average are moving further away from the top.

The average individual in the richest 1 percent in the United States earned $700,000 last year, according to research by New York University economics professor Edward Nathan Wolff.

NOT ALONE

Other Wall Street banks are talking about pay cuts, too.

JPMorgan Chase & Co, which has a reputation for being frugal, is paying investment bank employees just 35 percent of the $7.7 billion in revenue that division delivered so far this year. That is down from 39 percent from the year-ago period and compares with a 44 percent payout ratio for Goldman.

Chief Executive Jamie Dimon cast the paltry pay as a point of pride, telling reporters this week it would pay out a smaller percentage of its revenue as compensation than newspaper companies will this year.

Bank of America Corp Chief Financial Officer Bruce Thompson told analysts Tom Montag, head of the investment banking division, is looking to reduce bonuses this year, while Citigroup Inc CEO Vikram Pandit said the bank will make sure expenses are aligned with weaker performance.

"Frankly, compensation should be in line with performance too," he said.

Paul Sorbera, president of Wall Street recruiting firm Alliance Consulting, said his clients are expecting "a particularly disappointing year" for profits and pay. He expects other banks to cut even deeper than Goldman did.

"I would call this a bear market in negotiating compensation," Sorbera added.

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