MD Stock Options?

Many banks give stock options starting at the associate level, so they're not solely reserved for MDs. That being said, I don't know enough to allow comment on the cash vs stock proportions of bonus payouts.

i heard from credible sources that 30-40% of pay is cash, then some stock that vests immediately, and some that is restricted for certain periods of time.

If you didn't start at the bank you currently work in as an MD, you were probably bought out of your unvested stock and non-cash compensation. Plus a large portion of your signing bonus etc was probably paid in stock (over 50% to get you focused). I know at certain banks the vesting period on options like these are in the 5-6 year range.

Usually, unless you are leaving the banking/PE/HF world all together you can get someone to buy up the outstanding obligation in a like-for-like basis. Really it only matters at the end of your career. I know a few MDs who have stuck around making almost no money and being generally unhelpful because they have a year or two left till their options vest from a previous firm, then they are out.

Whoa, that seems like a long vesting period top me. Anyone know approx. how many shares they get? Or the strike price (if its different from the current stock price)? Just curious.

For the most part, stock options are relatively out of favor on Wall Street. I remember some option and SAR activity in the '99-'01 period, but with the advent of the mandatory expensing of options under GAAP and the relative benefits of using restricted stock, most firms have gravitated towards the issuance of restricted stock rather than options or stock appreciation rights.

The way that it works is generally your base pay is all cash, naturally. Your bonus, which is usually euphemistically labelled "incentive compensation", is all cash to a threshold. Most of the time, that threshold is earnings based. So perhaps the firm will exempt the first, say $150,000 of incentive comp making that part all cash. Then it will rachet up to maybe 20% for the next bucket, with increasing stock portions for each higher bucket of compensation. The maximum might be 50% stock. Or it might be 100% (see UBS for details). 50% would be considered a reasonable top bracket mix. 100% would generally be seen as offensive unless you are making ballplayer money.

I have never seen firms issue unrestricted stock. Why? Because: what's the point of that? The whole point of issuing stock is for retention purposes - it handcuffs you from leaving for a competitor, forcing them to buy you out to make it worth your while to leave. Given you unrestricted stock is like handing you cash. The only advantage might be if your firm has no money to hand you. That's a bad thing.

So what's market for vesting of restricted stock? Generally, three years is reasonable. Some firms push it to four years. Mostly it is equal vesting, although some firms might do 50% after two and 100% after three for example. Some small portion might be cliff vesting (that is, none of it vests until the very end), but that's not very popular - people tend to react viscerally to cliff vest as being a big "fuck you" type instrument. On the rare occasions I've been jammed with three year cliff vest, my personal reaction has been "fine, I'll take it, but I place absolutely zero value on it."

As for issuance price, some firms issue that face value amount at up to a 15% discount to market, but often it is struck at market price on the date of issuance.

There it is. Now you don't have to walk into your MD's office and ask the embarassing question.

You know, that post, more than anything, really convinced me that you're either an MD or a VP or someone pretty high up at a bank.

I'll never doubt you again.