To be sure, the best performers on the most profitable desks will still receive substantial bonuses. At Bank of America, top directors might earn a $1 million bonus while top vice presidents could net $600,000, according to one banker there.
What’s more, echoing trends in the broader economy, Wall Street chief executives are almost certain to escape the fate of the Zeros, with bonuses climbing into the stratosphere as the shock of the financial crisis fades and pay for the top tier climbs back toward historical averages.
Morgan Stanley is perhaps feeling the most pressure. In 2009, it paid out a record 62 percent of its net revenue in compensation and benefits; its chief executive, James P. Gorman, vowed to bring that down to bolster profits. But early this year, the firm’s board decided to start hiring in an effort to rebuild businesses in the wake of the financial crisis.
Now, having added 2,000 people in 2010 yet lacking any growth in revenue, the firm has little choice but to scale back on bonuses. Compensation will be lowered across the board, but there will still be plenty of Zeros, said one person familiar with Morgan Stanley’s compensation process.
Recently, Mr. Gorman has been telling employees that the selective, short-term pain on compensation will give the firm credibility with shareholders and help Morgan Stanley over the long haul, calling 2010 “the year of differentiation,” several employees said.
Even if overall salaries for Wall Streeters remain generous, the new zero-bonus culture is likely to change spending habits, said Robert J. Gordon, a professor of economics at Northwestern. Bonuses are spent differently than more predictable income, he said, citing “impulsive purchases, like jewelry from Tiffany’s for a girlfriend.”
Zero bonuses are likely to have a bigger impact on New York’s economy, which has grown dependent on the largess of Wall Street firms. Whether it’s for jewelry, high-end clothing or apartments, bonus spending has long fed a postholiday boom in January and February, especially in Manhattan and expensive suburbs like Greenwich.
“I suspect there will be some pain in the short-term,” said Robert D. Yaro, president of the Regional Plan Association, an independent research group in Manhattan.
“We’ve all heard the stories of someone showing up in Greenwich to buy a $10 million house and paying cash on the spot,” he added. “But in the long term, this is probably healthier for Wall Street and the regional economy. Wall Street shouldn’t be a casino.”