Big bonuses could be back in store for some top executives and traders on Wall Street as profitability returned to the investment banking industry in 2009, according to a new study released Thursday.
Johnson Associates said employees at companies that no longer are under strict government oversight are likely to find a big boost in their year-end paychecks compared with 2008. However, pay is still likely to fall below that seen in 2007 when the stock market and bonuses peaked, the compensation consulting firm said.
Overall, Johnson Associates projects workers at Wall Street banks will see between a 30 percent and 40 percent jump in year-end bonuses in 2009 compared with last year.
The increase in pay is likely to be even larger than average for equities, bonds and derivatives traders who have helped drive profits at their respective firms as the market has surged nearly nonstop since hitting a 12-year low in March.
Banking bonuses have been a hot-button political issue as financial markets have recovered much faster than the broader economy and the nation's unemployment rate approaches 10 percent.
Improving markets allowed some major financial firms to repay their bailout money to the government and now can set their sights on paying employees without restrictions.
The government gave hundreds of banks money last year as the credit crisis peaked and investment bank Lehman Brothers collapsed. With that money came restrictions on executive compensation.
For companies like
Goldman Sachs Group Inc. and JPMorgan Chase & Co. that have already repaid their government bailout, the restrictions have been lifted, freeing them up to lavish employees with bonuses.
Goldman had set aside $16.71 billion, or about 47 percent of net revenue, through the first nine months of the year for compensation, which includes salaries, bonuses and associated costs such as benefits and payroll taxes.
At the time it released third-quarter earnings last month, Goldman's chief financial officer, David Viniar, said decisions on bonuses are not made until the end of the year and the company, based in New York, would be taking into account the economic climate when decisions are made. The bank earned more than $3 billion in the third quarter.
Pay packages for workers at banks still holding government money, like
Citigroup Inc. and
Bank of America Corp., are likely to see restrictions in their bonuses, Johnson Associates said in its projections.
Johnson Associates said government oversight for some banks makes it more difficult to get a fully accurate picture of how bonuses will actually shape up for the year.
The government's pay czar, Kenneth Feinberg, who is overseeing compensation plans at the companies that received the most bailout money, recently put in place restrictions that will cut compensation for the highest paid employees at those companies by about 50 percent.
Cash salaries for the top 25 highest-paid executives will be limited in most cases to $500,000 and, in most cases, perks will be capped at $25,000.
Feinberg is also working on restrictions for the next 75 highest-paid employees at those companies.
The
Federal Reserve is also working on plans that could restrict compensation at financial firms in an effort to reduce risky trading and bets that helped push the economy into the
recession and the financial industry into its biggest crisis since the Great Depression.
