Wall Street splashes out on fat-cat bonuses

Wall St firms are set to pay their New York City workers a record US$21.5 billion ($30.8 billion) in bonuses for last year after profits at companies including Goldman Sachs and Lehman Brothers reached an all-time high.

State Comptroller Alan Hevesi said average bonuses for 174,000 investment bankers and other securities-industry workers would rise 10 per cent to US$125,500 ($180,000), also a record.

Total bonuses surpassed the previous peak of US$19.5 billion set during the bull market in 2000.

"More money is going to the stars than ever," said Michael Kelly, executive recruiter at Michael Kelly Associates. "The big money is going to the investment bankers and the traders because they've had a record year."

Bankers who help to arrange acquisitions, Wall St's most profitable business, got the biggest bonuses, which Kelly said could be as high as US$15 million.

Compensation rose as earnings at Goldman, Lehman, Morgan Stanley and Bear Stearns, four of the top five US firms by market value, jumped 15 per cent to US$14.6 billion. Trading revenue leapt 20 per cent for the year.

Compensation on Wall St typically consists of base pay of US$175,000 to US$250,000 for a senior managing director, plus bonuses, which are announced in December or January and paid during the following month.

Bankers who stand to gain the most include Jack Levy, 52, and Gene Sykes, 47, co-heads of M&A at Goldman, the world's biggest merger-advisory firm. Goldman worked on US$594 billion of completed mergers and acquisitions last year, an increase of 22 per cent from the previous year.

Paul Taubman, 45, heads the merger business at Morgan Stanley, which completed 27 per cent more deals last year than in 2004.

"M&A bankers and commodities traders will probably do best, but fixed-income and emerging-markets people will also likely do well," said Peter Gonye, an executive recruiter at Spencer Stuart.

"Many firms did not pay so well in the last couple of years and, now with bigger coffers, they're in a position to make allegiance payments."

Employment in the securities industry has rebounded since the Standard & Poor's 500 Index dropped 40 per cent from 2000 through 2002 and 100,000 financial-services workers lost their jobs worldwide. Hevesi said New York City added 8700 Wall Street jobs last year, a 5.3 per cent increase from the previous year.

The state will collect US$1.5 billion tax from the bonuses and New York City will get almost US$500 million. According to Hevesi's estimates, every job created in the local securities industry supports two more jobs in the city and a third in the suburbs. "A booming economy is good for everybody."

Profit industrywide may fall below the previous year's level because rising interest rates put up the cost of doing business.

Bonuses are linked to revenue, which surged almost 45 per cent in the first three-quarters of 2005, and reached the highest since 2000 on the strength of mergers and acquisitions.

Goldman paid chief executive officer Henry Paulson about US$37 million in shares and stock options. Richard Fuld, his counterpart at Lehman, got US$14.9 million in restricted stock. Unlike Paulson, Fuld typically also receives a cash bonus and options, which were worth US$15.2 million for 2004.

Last month, Morgan Stanley said it raised the stock portion of bonuses for members of its management committee to 65 per cent from 55 per cent to align their interests more closely with shareholders. CEO John Mack was paid US$11.5 million for the five months he worked at the firm. Acting president Zoe Cruz got a year-end stock bonus of almost US$14 million.

- BLOOMBERG