U.S. News

Wall Street Bonuses Seen Heading Even Higher


On Wall Street, the rich may get still richer.

Investment bankers may see bonuses and other incentive pay rise 10% to 15% from elevated 2006 levels, while gains may be 15% for traders and 20% or more for workers in private equity, according to a study by Johnson Associates, a prominent compensation consultant.

Financial services are benefiting from growth in international operations, proprietary trading and derivatives, and as low borrowing costs fuel record buyout activity.

"Many firms are building international businesses and seeing more and larger deals there, including in Asia and Europe," said Zanvi Patel, a vice president at New York-based Johnson Associates, in an interview. "Lenders are (also) benefiting from a healthy economy and record highs in some equity indexes."

"Companies have to balance their interest in boosting shareholder returns with a need to pay the producers who generate them."

But not all will benefit equally, the study said. Incentives may rise 10% for workers who serve wealthy clients and 5% to 10% in both asset management and commercial banking, the study said. Retail banking employees may see gains of flat to 5%, as rising mortgage defaults crimp profit.

In 2006, incentive pay rose about 20% in investment banking; 12.5% to 15% in trading; 10% in asset management, commercial banking and high net worth; and 7.5% in retail banking, Johnson Associates said.

Bonuses for securities industry employees were projected last year to have risen 17% to a record $23.9 billion, according to a December estimate by former New York State Comptroller Alan Hevesi.

Incentives can comprise the bulk of compensation for top investment bankers and traders. Their overall pay regularly reaches seven figures and occasionally eight figures.

Several investment banking and trading specialists reported strong first-quarter results. Trading gains helped Goldman Sachs and Morgan Stanley post record profits and helped Citigroup's investment banking and trading unit increase profit 36%.

Merger activity also remains strong, including a roughly $90 billion battle for Dutch bank ABN Amro and buyouts led by Kohlberg Kravis Roberts planned $31.8 billion takeover of power company TXU.

Goldman in April closed a $20 billion buyout fund, while Blackstone Group, a private equity firm preparing to go public, said it has raised $19.6 billion for its latest fund.