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Rome Burning, but Wall Streeters Raked in Hefty Bonuses in ’07

January 22, 2008
Related Topics: Compensation Design and Communication, Motivating Employees, Ethics, Latest News
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Despite the market free fall over the past few months, investment bankers made out just fine last year. According to an estimate from New York State Comptroller Thomas DiNapoli, the average Wall Street bonus for 2007 was $180,420.

“The securities industry rewarded employees who performed well in 2007 even though the credit crunch battered profits,” DiNapoli says. The take for 2007 was about 5 percent less than what investment bankers received last year. It still wasn’t bad: Bonuses for 2006 reached record levels.

This year will undoubtedly be a different story, however.

DiNapoli noted that bonuses have historically declined at a slower rate than profits because Wall Street firms use bonuses to retain top producers. While many firms sustained heavy losses from collateralized debt, business units involved in mergers and acquisitions, especially overseas, and equity underwriting had a record year.

DiNapoli’s office estimates that the bonus pool paid by the securities industry to its employees in New York City totaled $33.2 billion, slightly less than the record $33.9 billion in 2006. Wall Street added 9,600 jobs during the first 11 months of 2007, a 5.4 percent increase.

Actual bonuses vary by individual and by firm, ranging from hundreds of dollars for clerical staff to tens of millions of dollars for high performers and key executives. Not surprisingly, bonuses in 2007 will be dramatically lower for workers in mortgage-related businesses. But DiNapoli believes employees working in areas that showed strong performance last year—mergers and acquisitions, equity underwriting and trading—may receive even larger bonuses in 2008.

The seven largest financial firms headquartered in New York City earned $39 billion in profits during the first half of 2007. That’s a gain of 41 percent over the prior year. In the second half of the years, those firms lost a whopping $28 billion, leaving total pretax profits for the seven firms at about $11 billion.

In 2006, those same firms reported a record $60 billion record in profit.

Employee compensation, which includes bonuses, consumed 61 percent of the firms’ revenues in 2007, up from 45 percent 2006. DiNapoli noted that firms are paying more in a bid to retain high-performing employees.

Filed by the staff of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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