So I'm still banging away on research towards a piece on Wall Street employment and compensation. But I'm going to steal a little of my own thunder to get info to you in a timely way. I have had some recent conversations with friends from the street and what I am being told is now being confirmed in a Bloomberg article entitled "
CitiGroup Plans to Raise Salaries by as Much as 50%":
Citigroup Inc., the U.S. bank that got $45 billion of government funds, will raise base salaries by as much as 50 percent to help compensate for a reduction in annual bonuses, a person familiar with the plan said.
The biggest increases will go to investment bankers and traders, said the person who declined to be identified. Workers in consumer banking, credit cards, legal and risk management will see smaller salary adjustments.
No you are not hallucinating. Due to the restrictions on compensation for those banks accepting TARP funds, banks and brokers are raising salaries in order to hold onto their employees who will no longer be receiving large year-end bonuses.
One friend of mine told me: "The sell side is raising salaries (to retain people and because 'bonus' is a 4-letter word so that's a way around it." According to the Bloomberg article, C "will raise base salaries by as much as 50 percent to help compensate for a reduction in annual bonuses." Bloomberg goes on to list Morgan Stanley and UBS as firms that have already boosted salaries. I am told by additional contacts that other banks are following, Bloomberg mentions B of A as well.
I am told that hedge funds in general continue to reduce headcount and that high water marks that have not been exceeded will significantly impact bonus pools.
The net of these trends is a positive for lower value residential real estate, which Wall Streeters will feel comfortable buying, but tough on those multi-million dollar penthouses, which will be out of reach for many.
This is NOT wage inflation, this is a substitution of a small increase in base pay to replace potentially large bonuses. Also, it increases banks' fixed costs but reduces variable cost growth in booming times. Not a great recipe for bolstering banks' bottom line should tough times return. While it is unclear the extent of the limitations on employee compensation will be after regulatory reform, it is likely that we are moving from a 'multiple of salary' bonus environment to one where employees will get a percentage of their salary in compensation. Net net, it seems to me that overall compensation is clearly going down.
I'm a bit verklempt. Talk amongst yourselves. Here, Ill give you a topic. A wall street bonus is neither a wall or a street...discuss!
