Cruel Calculus: Wall Street slashes jobs, salaries and bonuses

According to thedeal’s Michael Rudnick: For thousands of investment bankers who toiled on Wall Street during the heady days of the mid-2000s, 80% of success, to borrow a line from Woody Allen, was just about showing up. In those precrisis, high-profit times, almost every banker working at a major firm could count on receiving an extra reward in their paycheck come bonus time, largely to compensate for what was viewed as their relatively low fixed salaries.

But no more. Under increased pressure from shareholders, lawmakers, regulators and the public at large, earnings-strapped Wall Street banks are now much more selective about who receives the top rewards -- and what those rewards consist of. These days, there is at least a 30% bonus differential between a bank's best performers and its next level of producers, says Alan Johnson of New York-based compensation consultancy Johnson Associates Inc. There are also fewer bonuses in "the middle and more outliers on both ends," he adds, meaning that some bankers will receive no bonus at all. As one back-office employee at a big investment bank puts it, "This is the first time Wall Street is not the best place to earn money."

To be sure, bonus season, which at most firms begins toward the end of the year when bankers learn what they will receive in their paychecks the following year, is still a highly anticipated time on Wall Street as incentive-based compensation, while now a smaller portion of total pay, still represents a large majority of overall comp. But at the urging of regulators, bonus pay today is more likely to be paid in equity and deferred cash than in the past, and in some cases, it can even be clawed back. Meanwhile, banks have moved to raise base salaries to keep employees happy as their bonuses drop. But that has served only to significantly increase the firms' fixed costs at a time when their earnings are under pressure from a sputtering global economy and from their regulator-mandated exit from high-risk, high-profit businesses, such as proprietary trading....


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