Wall Street pay: Headed up or down?
It was a good third quarter for Wall Street profits and an even better one for employees: Goldman Sachs and Morgan Stanley set aside another $7.6 billion in compensation during the period, with year-to-date pay for the average employee up 15 percent at Goldman and 3 percent at Morgan Stanley.
Total comp accruals for both firms so far this year are up to $23 billion, 2 percent higher than the amount set aside a year ago. That equates to or 47 percent of adjusted net revenue, down from 50 percent for the first nine months of 2011, but still much higher than the pay levels some shareholders are demanding.
The data are a little befuddling, since New York State Comptroller Thomas DiNapoli recently said he expects Wall Street to lose jobs this year, and for pay to drop. Recruiters and Wall Street pay consultants have also said they expect pay to either decline or remain relatively flat for many kinds of traders and bankers this year. And JPMorgan’s investment bank has already started chopping down banker pay.
It is also be a sign that the disconnect between shareholders and management has not been resolved at some Wall Street banks. As Unstructured Finance and Reuters have reported, investors are looking for Goldman and Morgan Stanley to bring their comp levels down – way down –to perhaps as little as 30 percent of revenue. (A demand that one Wall Street source told Unstructured Finance would cause profits to evaporate entirely, because all the bankers and traders would quit.)
So is Wall Street pay on the way up or on the way down? Frankly, it’s hard to tell.
Adding more confusion, one analyst says it might be doing both.
Sanford Bernstein’s Brad Hintz expects Goldman to cut comp to just 30 percent of revenue in the fourth quarter. But that’s only because the bank has not yet fully accounted for all of its cost cutting or made final decisions on the bonus pool, which it usually does right after Dec. 31.
Even after Goldman makes those tweaks, Hintz expects Goldman’s compensation costs to rise to $13.3 billion from $12.2 billion in 2011. He predicts the average Goldman worker will take home $412,000 in pay this year, up from $353,000 in 2011.
Not to shabby for a bank that’s not even earning its cost of capital.