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Last year’s bonuses officially colossal

If you were unhappy about your bonus last year, you’ll be even more unhappy about your bonus this year. An analysis of the Office for National Statistics figures by the Telegraph suggests banks’ 2007 payouts were a record 12.6bn in the City, up 500m on 2006.

The Telegraph‘s calculations are in line with the figures at Morgan Stanley, for example, which hiked 2007 compensation and benefits costs by 20% last year to keep up with Goldman Sachs.

This is slightly at odds with the CEBR’s analysis (see graph, top left), which suggests 2006 was the record year and that bankers were marginally worse off in 2007.

Anyone who expects their payout for 2008 to rival last year’s rivals the Treasury for delusional forecasting. The CEBR predicts London bonuses will be down 40% in 2008. Based on Q1 allocations, banks’ own figures suggest a 15-30% drop is likely.

The head of comp and bens at one bulge-bracket firm in the City says it’s still early days but a 30% drop looks reasonable. Given 2007’s massive payouts, he points out this isn’t earth shatteringly catastrophic: “2006 and 2007 bonuses were extremely high. This isn’t a big deal.”

Who vests first?

Separately, the FT had an interesting article last week looking at which US banks allow senior staff to cash in the soonest.

In first place was JPMorgan, which pays 30-35% of top-level bonuses in stock, half of which vest after two years with the remainder vesting in the third.

Senior Morgan Stanley bankers receive as much as 70% of their bonus in stock, vesting after two years.

Goldman partners get 60%, vesting after three years.

Citi vests after four years.

Worst of all seems to be Lehman, whose stock vests after five years, according to the Economist. However, we think this may have been shortened recently.

Comments (7)

  1. When “bonuses down 30%” is referred to, is this likely to be across the board, or more aimed at “career level” VPs/Directors. What i mean is that for more junior employees, who expect an incremental uplift in comp simply for having +1 years experience, is the -30% (or whatever the number may be) likely to be on last years comp, or on what they WOULD have gotten this coming bonus season in more “normal” market conditions?

    It’s been suggested that it’s more likely to be the latter, but i’m not so sure? Is there really a precedent for this?

  2. If we assume 300k workers were eligible for a bonus in the financial district of the City, then that indicates an average bonus of roughly 42k in 2007. That is hardly the megabucks that everyone keeps hyping up.

    MBA & CFA Grad Reply
  3. Well put it this way. 1) All secretaries, admin etc with virtually no bonuses and contracts in GBP or EUR; 2) all juniors (up to 2-3 yrs experience) that are usually flat or up a bit if they do reasonably well (this is small beer and needs to be done to keep them in), 3)take into account the fact that base salaries are paid in local currency (GBP, EUR, anything but USD). Then deduct all of that from total comp down 30% in USD. And what you find is that pools available for bonuses are down more like 50% at least for all employees above 2/3 years. Deduct tax, stock bonus etc and get ready to blow your number on a meal at the latest Conran venture…

  4. For Junior Sales, it will be down on last year. If you do well it will be flat/slightly up. No accounting for what it would have been etc.

  5. I find all this ridiculous.
    Lots of people aren’t worth 1/100th of what they earn.
    Let alone their bonuses….

  6. JUNIOR SALES, it is the “latter” – 30% down to what you WOULD be expected to get for being one year senior. Not 30% based you the previous year (i.e. what you got already).

  7. Come on its all excellent comparing to what you get in Dutch name in Warsaw…

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