Happy paydays are here again — on Wall Street, at least.
Compensation consulting firm Johnson Associates last week forecast that Wall Street bonuses will rise 40% this year.
At The Goldman Sachs Group Inc., average pay per employee is on pace to hit $658,000 this year — 80% higher than a year ago.
Generous pay guarantees for incoming executives and golden parachutes for departing managers are making a comeback.
And salaries are going straight up.
American Express Co. last month disclosed that it recently had raised the base salaries of its chief financial officer and two other executives by a range of 24% to 48% to offset 10% pay reductions the executives took this year. And new details on the $20 million exit package for AmEx president Alfred Kelly, who is leaving by April to search for a CEO post elsewhere, show he will be paid his $9.7 million in severance over two years, even if he lands a job at Bank of America Corp. or another big competitor.
AmEx declined to comment.
The credit card giant has repaid the government its $3.4 billion in bailout money.
Mortgage company Freddie Mac, still a ward of the state, in September granted its new chief financial officer, Ross Kari, a pay package that includes $675,000 in annual base salary, $1.2 million in target incentive pay and $1.7 million in what it described as “additional annual salary,” to be paid out over time.
Federal filings over the past four years show that while companies occasionally award additional salary if executives hit performance targets, none appears to guarantee it the way Freddie Mac has.
The company declined to comment.
MAKING TROUBLE
Lazard Ltd. last month said it would take an $86.5 million charge to reflect the cost of awarding stock to the heirs of recently deceased chief executive Bruce Wasserstein. The charge equaled nearly 70% of the investment bank's quarterly revenue from advising companies on mergers.
Lazard declined to comment.
The revival of outsize pay at financial firms creates not only political problems for Wall Street but hostility among executives at smaller banks, who don't typically garner such generous packages. Indeed, a survey last week of small and midsize banks by accounting firm Grant Thornton showed that 55% plan to cut bonuses.
One reason for the thriftiness may be that bailed-out banks are restricted from offering significant bonuses. But even banks that avoided government assistance typically face rising credit losses and shrinking loan books, leading to shrinking earnings.
“When it comes to pay, Wall Street and the rest of the banking world are two different entities,” said Henry Oehmann, national executive compensation services director at Grant Thornton.
To blunt the impact of lower bonuses, Morgan Stanley last spring more than doubled base pay for top managers. Several banks have since followed suit with salary increases, including Credit Suisse Group AG, Wells Fargo Bank NA, PNC Bank and Fifth Third Bank, according to research by the American Federation of State, County and Municipal Employees, a union which has more than $1 trillion in assets in its pension funds.
Aaron Elstein is a senior reporter at sister publication Crain's New York Business.
