MNeagle
1st February 2011, 06:47 PM
By AARON LUCCHETTI And STEPHEN GROCER
When it comes to paychecks, Wall Street's law of gravity is back in full force: What goes down must come back up.
In 2010, total compensation and benefits at publicly traded Wall Street banks and securities firms hit a record of $135 billion, according to an analysis by The Wall Street Journal. The total is up 5.7% from $128 billion in combined compensation and benefits by the same companies in 2009.
The increase was fueled by a revenue rebound as the financial crisis recedes in the rearview mirror. At 25 large financial firms that have reported full-year results, revenue rose to $417 billion, another all-time high, even though last year's 1% increase was just a fraction of the industry's revenue jolt from 2008 to 2009 as trading and investment banking sprang back to life.
"Things are shifting back to where they were before," said J. Robert Brown, a law professor at the University of Denver who studies compensation and corporate-governance issues.
Buried in the numbers, though, are signs of how Wall Street's pay culture is bending in response to pressure from regulators and shareholders. Last year, deferred compensation made up as much as half of total pay, up from about a third previously, estimates Alan Johnson, managing director of Johnson Associates Inc., a New York pay consultant.
Banks and securities firms are deferring a larger percentage of compensation than they used to, trying to counter criticism that yearly cash bonuses encourage unwise risk-taking by executives, traders and other employees aiming for a big payday.
At the same time, many Wall Street firms increased base salaries in 2010, another effort to encourage employees to focus on longer-term performance. Such moves nudged overall compensation higher, though the exact amount can't be determined from figures disclosed by the companies.
Some factors may put a damper on the recent increases in compensation. Investors still reeling from losses during the crisis, an inconsistent deal-making pipeline, tightening regulations and the slow economic recovery are causing asset managers, investment banks, brokers and other financial firms to scramble for revenue growth.
Revenue is a major factor in compensation decisions, with the 25 companies paying out roughly one-third of total revenue. The percentage, known as compensation ratio, climbed to 32.5% last year from 31.1% in 2009. Average compensation per employee increased 3% to about $141,000, though the figure varies widely from company to company.
Some of last year's overall pay increase came from hiring in anticipation of improved market conditions. Bank of America Corp. said its total compensation and benefits climbed 11% to $35.1 billion last year from $31.5 billion in 2009. A spokesman for the Charlotte, N.C., company noted its expansion of investment-banking and corporate-banking services in Europe.
At investment bank Greenhill & Co., a three-year hiring spree of managing directors and increased deal activity fueled a 16% jump in compensation and benefits, which reached $159.9 million in 2010, up from $138.3 million a year earlier. After stumbling last week with disappointing fourth-quarter results, Greenhill said top executives will take no cash bonuses for 2010 and get restricted shares that vest after five years. Greenhill didn't respond to a request for comment.
Such deferred awards, now the norm for high-level Wall Street executives, aren't reflected in the compensation and benefits reported by companies for 2010. In addition, last year's total includes a substantial amount of compensation that was awarded in 2009 or earlier but didn't reach the employee's bank account until 2010.
The Journal's analysis includes 25 publicly traded firms with a stock-market value of at least $1 billion each. About a dozen large companies were excluded because they haven't reported 2010 results yet. The 25 companies in the analysis have a combined stock-market value of more than $750 billion, or 85% of the industry's total stock-market value.Mr. Johnson said highly paid traders suffered pay hits of 20% to 30% last year, while commercial bankers and hedge-fund managers had slight increases. Overall compensation at financial-services firms was flat, he calculates, hurt by the trading slowdown in November and December.
Wall Street firms had less flexibility than in the past to reduce or increase compensation, said Glenn Schorr, an analyst with Nomura Securities. That is because many companies increased salaries, which are hard to reverse if revenue proves to be disappointing later.
As revenue growth decelerated last year, top executives and other employees who boosted the bottom line got much of the gains in pay, said the University of Denver's Mr. Brown. "Stars will be paid even more, which means other people will be paid less," he said.
Bank of America Chief Executive Brian Moynihan got a 67% bump in his total compensation for 2010, the company said Monday. Goldman Sachs Group Inc. tripled the salary of Chairman and CEO Lloyd C. Blankfein and increased his stock-based bonus 40% to $12.6 million.
Pay could resurface as an issue at shareholder meetings this spring. The Dodd-Frank financial-overhaul law mandates that shareholders get a regular "say-on-pay" vote about corporate compensation plans.
This week, a group of about three dozen investment funds called for companies to support an annual advisory vote on pay, rather than a two- or three-year schedule. The frequency of the advisory vote also will come up at 2011 annual meetings, the shareholder group said.
http://online.wsj.com/article/SB10001424052748704124504576118421859347048.html?m od=rss_whats_news_us_business
When it comes to paychecks, Wall Street's law of gravity is back in full force: What goes down must come back up.
In 2010, total compensation and benefits at publicly traded Wall Street banks and securities firms hit a record of $135 billion, according to an analysis by The Wall Street Journal. The total is up 5.7% from $128 billion in combined compensation and benefits by the same companies in 2009.
The increase was fueled by a revenue rebound as the financial crisis recedes in the rearview mirror. At 25 large financial firms that have reported full-year results, revenue rose to $417 billion, another all-time high, even though last year's 1% increase was just a fraction of the industry's revenue jolt from 2008 to 2009 as trading and investment banking sprang back to life.
"Things are shifting back to where they were before," said J. Robert Brown, a law professor at the University of Denver who studies compensation and corporate-governance issues.
Buried in the numbers, though, are signs of how Wall Street's pay culture is bending in response to pressure from regulators and shareholders. Last year, deferred compensation made up as much as half of total pay, up from about a third previously, estimates Alan Johnson, managing director of Johnson Associates Inc., a New York pay consultant.
Banks and securities firms are deferring a larger percentage of compensation than they used to, trying to counter criticism that yearly cash bonuses encourage unwise risk-taking by executives, traders and other employees aiming for a big payday.
At the same time, many Wall Street firms increased base salaries in 2010, another effort to encourage employees to focus on longer-term performance. Such moves nudged overall compensation higher, though the exact amount can't be determined from figures disclosed by the companies.
Some factors may put a damper on the recent increases in compensation. Investors still reeling from losses during the crisis, an inconsistent deal-making pipeline, tightening regulations and the slow economic recovery are causing asset managers, investment banks, brokers and other financial firms to scramble for revenue growth.
Revenue is a major factor in compensation decisions, with the 25 companies paying out roughly one-third of total revenue. The percentage, known as compensation ratio, climbed to 32.5% last year from 31.1% in 2009. Average compensation per employee increased 3% to about $141,000, though the figure varies widely from company to company.
Some of last year's overall pay increase came from hiring in anticipation of improved market conditions. Bank of America Corp. said its total compensation and benefits climbed 11% to $35.1 billion last year from $31.5 billion in 2009. A spokesman for the Charlotte, N.C., company noted its expansion of investment-banking and corporate-banking services in Europe.
At investment bank Greenhill & Co., a three-year hiring spree of managing directors and increased deal activity fueled a 16% jump in compensation and benefits, which reached $159.9 million in 2010, up from $138.3 million a year earlier. After stumbling last week with disappointing fourth-quarter results, Greenhill said top executives will take no cash bonuses for 2010 and get restricted shares that vest after five years. Greenhill didn't respond to a request for comment.
Such deferred awards, now the norm for high-level Wall Street executives, aren't reflected in the compensation and benefits reported by companies for 2010. In addition, last year's total includes a substantial amount of compensation that was awarded in 2009 or earlier but didn't reach the employee's bank account until 2010.
The Journal's analysis includes 25 publicly traded firms with a stock-market value of at least $1 billion each. About a dozen large companies were excluded because they haven't reported 2010 results yet. The 25 companies in the analysis have a combined stock-market value of more than $750 billion, or 85% of the industry's total stock-market value.Mr. Johnson said highly paid traders suffered pay hits of 20% to 30% last year, while commercial bankers and hedge-fund managers had slight increases. Overall compensation at financial-services firms was flat, he calculates, hurt by the trading slowdown in November and December.
Wall Street firms had less flexibility than in the past to reduce or increase compensation, said Glenn Schorr, an analyst with Nomura Securities. That is because many companies increased salaries, which are hard to reverse if revenue proves to be disappointing later.
As revenue growth decelerated last year, top executives and other employees who boosted the bottom line got much of the gains in pay, said the University of Denver's Mr. Brown. "Stars will be paid even more, which means other people will be paid less," he said.
Bank of America Chief Executive Brian Moynihan got a 67% bump in his total compensation for 2010, the company said Monday. Goldman Sachs Group Inc. tripled the salary of Chairman and CEO Lloyd C. Blankfein and increased his stock-based bonus 40% to $12.6 million.
Pay could resurface as an issue at shareholder meetings this spring. The Dodd-Frank financial-overhaul law mandates that shareholders get a regular "say-on-pay" vote about corporate compensation plans.
This week, a group of about three dozen investment funds called for companies to support an annual advisory vote on pay, rather than a two- or three-year schedule. The frequency of the advisory vote also will come up at 2011 annual meetings, the shareholder group said.
http://online.wsj.com/article/SB10001424052748704124504576118421859347048.html?m od=rss_whats_news_us_business