Betting on the Bonus

I recall the first time I checked out Wall Street Oasis. It was late 2007 and all the buzz was about bonuses. The supposedly extinct douchebag banker was at his peak as a cultural icon and you could smell champagne wishes and caviar dreams in the air.

As far back as I can recall, Fifth Avenue glistened in December. Wall Street smiles every lit up the eyes of many a sales clerk. Cash registers rang and sang the "Bonus Bells". Manhattan was the playground of monkeys juiced to the tail with anticipation.

Emails and phone calls shot of at hundreds per second. What was Goldman giving out this year? How about Stanley?

The sideways glances and sarcastic snickers aimed at those poor mid-market and boutique schlubs...

Things are quite different only three years later. I'm not sure whether the industry is going through a reformation, whether people are just scared silent or this is just one of those groupthink it will all be over soon epidemics that can never be cured. What was once the apex month of a young banker's career, where screams and giggles of joy showered the Street...I hear... nothing.

In a recent report by the Korn/Ferry Institute bonus bubbles seem set to burst by anywhere from 10-25% across the board and uncertainty about the future of banker payouts continues to linger. Prop traders on the other hand, are expected to see the price of their hard work slashed in half.

Yet here it is, bonus season coming soon to an investment bank near you...

So, let's have some predictions boys and girls.

Let's be carefree and play like it's the good old days...

What are bonuses going to look like this year? How much will you be taking home?

What are you going to buy? Or will you be on cash hoard mode while cracking a box of wine on New Year's Eve?

Does this bonus season lead any of you to reflection or thought of what's to come?

Do you yet realize...that it has only just begun?

Comments (38)

Dec 16, 2010

piper jaffray employees are actually receiving a box of wine in loo of a cash bonus

Dec 16, 2010
Barcadia:

piper jaffray employees are actually receiving a box of wine in loo of a cash bonus

LMAO I laughed out loud. *lieu

Dec 16, 2010
Barcadia:

piper jaffray employees are actually receiving a box of wine in loo of a cash bonus

You are a fucking idiot - you will never work in IB, or win a spelling bee

Dec 16, 2010

your joke doesn't work when you sound like a moron.

in loo? really??

twitter: @CorpFin_Guy

Dec 16, 2010

I am building a garage apartment for monkeys to lease during the summer and MBA's in the fall/spring

Dec 16, 2010

invest/car/bschool costs

Dec 16, 2010

BO AM guy, but i'm shoring up the personal books.

Dec 16, 2010

Midas,

You mention in your article that you believe this bonus slashing has only begun. Pending the pace of the economic recovery , do you see this reduction as a permanent change to the industry or merely a short term amendment? Primarily, are the days of "champagne wishes and caviar dreams" on Wall St. gone?

  • Greenberg
Dec 16, 2010
Alan Greenberg:

Midas,

You mention in your article that you believe this bonus slashing has only begun. Pending the pace of the economic recovery , do you see this reduction as a permanent change to the industry or merely a short term amendment? Primarily, are the days of "champagne wishes and caviar dreams" on Wall St. gone?

  • Greenberg

Good question, Alan. SB for you. I don't like to use words like "permanent" simply because nothing ever is. I do think, however, that an actual recovery is a long, long ways off. As a result, there will be less of everything as time wears on. You see, the biggest failure of the system as a whole (blame the street, blame the regulators, blame the common man, whoever's your favorite) is that we still have not admitted that we have a problem. We are still like that junkie swearing that this is his last fix and that it'll be different this time around.

As time goes by there will be less money and opportunity to share. The guys "further atop the totem pole" will grab for bigger chunks of the pie which will ultimately come out of the pockets of the monkeys on the bottom.

Now, listen...you will always make a lot more money being a cubicle stiff on Wall Street than anyplace else. That having been said, I really don't think the "champagne wishes and caviar dreams" were every really tied to bonuses. I think they were tied to the idea of what you could do with that money.

Now that there's an air of uncertainty most guys are uncomfortable living that banker lifestyle that was so heavily lauded a few years back. When you add regulatory pressures, the inevitable effects of Basel II (it will effect everyone eventually) and who knows what shitstorm may come next...bonus decreases are an inevitability. Still not something to cry about, but definitely something worth consideration IMHO.

Dec 16, 2010
Midas Mulligan Magoo:

Now, listen...you will always make a lot more money being a cubicle stiff on Wall Street than anyplace else. That having been said, I really don't think the "champagne wishes and caviar dreams" were every really tied to bonuses. I think they were tied to the idea of what you could do with that money.
.

Oil&Gas pays quite well. Think 80-90 starting plus sign-on bonus, plus performance bonus.
Performance bonuses may not equal WallSt, but then again you don't have to work 100 hrs a week.
Flexible schedules, work from home, benefit incentives, vacation

More is good, all is better

Dec 16, 2010

lieu? what is that mexican? i speak american this is america.

Dec 16, 2010

Midas,

if wallstreet admits it has a problem, wouldn't that be enough to see large bonuses slowly become non-existent? i think if the lucrative bonuses that we had seen on wallstreet in the past 5 years (well prior to the crash) are to remain, wallstreet will merely have to find a new "fix" ...instead of sub-prime mortgages,etc. ...another bubble will be needed. as cynical as that sounds...

Dec 16, 2010
gekkoguy86:

Midas,

if wallstreet admits it has a problem, wouldn't that be enough to see large bonuses slowly become non-existent? i think if the lucrative bonuses that we had seen on wallstreet in the past 5 years (well prior to the crash) are to remain, wallstreet will merely have to find a new "fix" ...instead of sub-prime mortgages,etc. ...another bubble will be needed. as cynical as that sounds...

precisely...but is this really so bad?...industries are cyclical, investment banking had it's peak and now its time to plateau back down to earth...banking is and should be a relationship style of business instead of the hard sell, this is the only true regulatory measure that can prevent future blow ups...yes this will mean no more gigantic bonuses, but a more consistent steady stream (of what will still be better bonuses than you could get at 99% of other jobs) isn't really a big deal and may in fact be much better for the industry overall...

as far as the way wall street goes frolicking about like a fucking hentai slutbag blowing bubbles all over the fucking place, well that shit's over and done with...no more fucking bubbles and POOF bye-bye pyramic scheme economics...let's take the meds while we still haven't gone batshit folks

Dec 16, 2010

Morgan Stanley already announced a 10-30% reduction in bonuses.

But to help brighten everyones spirits: You can either be the investment banker who's 40-60k bonus isn't as good as it could have been, or you could be apart of the 50,000 displaced bankers/9.8% unemployment rate the country is dealing with. I'd stick with the smaller bonus and full-time job.

    • 1
Dec 16, 2010

MS only cut IBD bonus pool by 8%, other groups like trading (supposedly Fixed income trading getting hit) seeing cuts as high as 30%. Cuts will probably affect senior-level low performers across groups.

Dec 16, 2010

Gorman interview on CNBC -

He seems upbeat.

Dec 16, 2010
New Yorker:

Gorman interview on CNBC -

He seems upbeat.

so did fuld the day before the bankruptcy... can you really trust the characters on tv?

Dec 16, 2010

I disagree with Midas here. While the "full" recovery may be a few years off, whenever that happens I would bet bonuses come back with a fury. Why? Because why were they there in the first place? Because that was the price the market cleared at....sure, regulatory restrictions could limit the $s the gorillas at the top make, but for most of the guys on this board, especially in IBD, I'd be surprised if overall comp continued to drop past 2011.

Sure, the bonuses may never reach 2007 levels again (i wouldnt bet againt that though), but they could very easily get back to 2004-2005 levels which is still a shit ton of money for a 23 year old. Also, if regulators want to put restrictions on bonuses, what is going to stop banks from paying significantly higher bases to retain their talent?

Banks will continue to chase the most driven students that are willing to pull multiple all-nighters and they will continue to pay an "unfair" compensation package to these young monkeys. Honestly, my bank would have had to pay me ~$500k for me to stay for a 3rd year - THAT is how burnt out I was....the $100k+ comp/yr as an analyst is NOTHING compared to the sacrifices you make physically and socially.

Dec 16, 2010
WallStreetOasis.com:

I disagree with Midas here. While the "full" recovery may be a few years off, whenever that happens I would bet bonuses come back with a fury. Why? Because why were they there in the first place? Because that was the price the market cleared at....sure, regulatory restrictions could limit the $s the gorillas at the top make, but for most of the guys on this board, especially in IBD, I'd be surprised if overall comp continued to drop past 2011.

Sure, the bonuses may never reach 2007 levels again (i wouldnt bet againt that though), but they could very easily get back to 2004-2005 levels which is still a shit ton of money for a 23 year old. Also, if regulators want to put restrictions on bonuses, what is going to stop banks from paying significantly higher bases to retain their talent?

Banks will continue to chase the most driven students that are willing to pull multiple all-nighters and they will continue to pay an "unfair" compensation package to these young monkeys. Honestly, my bank would have had to pay me ~$500k for me to stay for a 3rd year - THAT is how burnt out I was....the $100k+ comp/yr as an analyst is NOTHING compared to the sacrifices you make physically and socially.

Two questions that I can't answer and I'd like to pose to you:

1) Where is the revenue for investment banks going to come from in the future? M&A? IPOs? Prop? (joking on that last one). In order to keep hiring, paying, churning and burning young monkey flesh, the Wall Street wheels need to keep turning. Many of the street's favorite cash cows are no longer there, at least not to sustain what was the status quo.

2) At some point what do the banks do about the supply/demand issue? I mean the oversupply of talent and the abundance of that talent's demand for a dwindling number of IB gigs. Between the guys who were laid off over the past few years and the guys who've spent an academic lifetime's worth of work trying to break in...what's to stop any of the BBs from changing the rules and offering let's say:...$35/20 for an analyst, $55/30 for an associate? I think that while we talk a lot about compensation the perceived glory of landing an IB role is very underestimated and could quite easily become a factor sooner rather than later.

Dec 16, 2010
Midas Mulligan Magoo:

what's to stop any of the BBs from changing the rules and offering let's say:...$35/20 for an analyst, $55/30 for an associate? I think that while we talk a lot about compensation the perceived glory of landing an IB role is very underestimated and could quite easily become a factor sooner rather than later.

The fact that nobody is going to do the work that analysts/associates do for those numbers. A student can bartend and make more than that working 5 nights a week 5 hours per shift...

Dec 16, 2010
Midas Mulligan Magoo:

Two questions that I can't answer and I'd like to pose to you:

1) Where is the revenue for investment banks going to come from in the future? M&A? IPOs? Prop? (joking on that last one). In order to keep hiring, paying, churning and burning young monkey flesh, the Wall Street wheels need to keep turning. Many of the street's favorite cash cows are no longer there, at least not to sustain what was the status quo.

2) At some point what do the banks do about the supply/demand issue? I mean the oversupply of talent and the abundance of that talent's demand for a dwindling number of IB gigs. Between the guys who were laid off over the past few years and the guys who've spent an academic lifetime's worth of work trying to break in...what's to stop any of the BBs from changing the rules and offering let's say:...$35/20 for an analyst, $55/30 for an associate? I think that while we talk a lot about compensation the perceived glory of landing an IB role is very underestimated and could quite easily become a factor sooner rather than later.

1) Yes, M&A, IPOs and Prop - just called something else. Sorry, the world still needs capital and even if the big boys fail, the MMs (or other BBs still standing) will be right there to happily grab their business and expand. It may take a few years, but it is really just cyclical / dependent on GDP. The cash cows will always be there unless we go into a global depression, but then we're all fucked.

2) What is stopping them from doing that is they know they will get mediocre talent that will make a shitload of errors, which will cost them a ton of money as clients lose trust. As much as we like to joke about analysts / associates just being monkeys...they are extremely anal / smart monkeys on average. If one bank decides to skimp on comp at the junior levels, there will be a backlash and no top candidates will go there.

...didnt understand your last sentence...you mean the perceived glory of landing an IB role is OVERestimated? I don't necessarily disagree with you, but as long as you can have close to 6 figures at 23 years old and as long as banking is the feeder (EXIT OPPS in the house!!) into even more lucrative and "prestigious" careers, why would this change? You think banking, PE and VC are all just going to go "poof" and disappear? Have they contracted significantly as you would expect in a recession..yes. But in my opinion, there will still be those few spots next to the pot of gold at the end of the rainbow that will drive the most ambitious students to chase and keep it competitive.

Dec 16, 2010

Just an idea...but can't the banks cut bonuses down but increase base salary? Would huge salaries also be looked down upon?

Dec 16, 2010

Double post

Dec 16, 2010
Ryu Banker:

Just an idea...but can't the banks cut bonuses down but increase base salary? Would huge salaries also be looked down upon?

It's possible and has already happened to some extent-many banks have already raised salaries-but I expect banking and finance will always be more weighted to bonuses than other industries.

Epicurean Dealmaker has a great post on the historical and business reasons for comp to be the way it is (bonus- and restricted stock-heavy):

"By paying even the most senior investment banker a relatively small percentage of his or her expected earnings as salary, the bank not only keeps the banker honed to a keen, aggressive, business-getting edge but also maintains a call on revenues the banker expects to bring in with a relatively low-cost option."

The whole post is very interesting and worth reading:
http://epicureandealmaker.blogspot.com/2009/02/fiv...

Dec 16, 2010
Kenny_Powers_CFA:
Ryu Banker:

Just an idea...but can't the banks cut bonuses down but increase base salary? Would huge salaries also be looked down upon?

It's possible and has already happened to some extent-many banks have already raised salaries-but I expect banking and finance will always be more weighted to bonuses than other industries.

Epicurean Dealmaker has a great post on the historical and business reasons for comp to be the way it is (bonus- and restricted stock-heavy):

"By paying even the most senior investment banker a relatively small percentage of his or her expected earnings as salary, the bank not only keeps the banker honed to a keen, aggressive, business-getting edge but also maintains a call on revenues the banker expects to bring in with a relatively low-cost option."

The whole post is very interesting and worth reading:
http://epicureandealmaker.blogspot.com/2009/02/fiv...

+1 for TED. I'm a big fan of his work - even though I don't agree with everything he has to say - if only because it's so damn interesting. Always thought-provoking and a great way to kill time. Also worth a follow on twitter, if that's your thing. @epicureandeal

Dec 16, 2010

When I made a move last year, I made sure to fight for a decent base. My base doesn't put me on park ave, but I am no longer at the mercy of the bonus gods as to whether Christmas will come this year. My timing was pretty key, because shortly after I joined, I received a base salary adjustment again to compensate for smaller future bonuses.

I may not get a 6 figure bonus this year, but I am ok with that. To be honest though, I have never been in a role where I expected huge bonuses though.

Dec 16, 2010

Deja Vu from 2005:
"We usually anticipate this season, but the last few years since the Tech Bubble have been so rough for the economy that we had forgotten just how crazy it gets," commented a bartender at Tribeca Grand

http://www.leveragedsellout.com/2005/07/bonus-season

Dec 16, 2010

I can only speak for M&A, but I can only fathom bonuses rising in 2011 and 2012, unless some catastrophic economic event occurs. There's a shit load of money sitting on the sidelines for M&A. F500s have a lot of cash, and their Officers are being called on to do something with it. Organic growth isn't really possible in this market, so the shopping spree begins. I've seen it already in the past 2 months, these guys are calling on MM businesses to sell.

Add to that, the $485B+ PE dry powder, and we've got ourselves a situation. If activity increases as I expect for 2011 and 2012, bonuses will be fantastic at the MM and boutique level, which will force BBs to follow the trend (unless some sort of regulation gets in their way).

Dec 16, 2010

2) What is stopping them from doing that is they know they will get mediocre talent that will make a shitload of errors, which will cost them a ton of money as clients lose trust. As much as we like to joke about analysts / associates just being monkeys...they are extremely anal / smart monkeys on average. If one bank decides to skimp on comp at the junior levels, there will be a backlash and no top candidates will go there.

Midas Mulligan Magoo:

Mmm...see that's just it. Maybe that would have been the case in the past, but today there's a ton of top flight talent ready to step in...with experience in many cases. There's more kids than ever sitting on the sidelines grinding their teeth to get in. Just saying...push comes to shove...

I'm inclined to agree with WallStreetOasis.com on this one. We're just getting into summer recruiting at school now and there's been a lot of talk amongst my classmates about what so and so wants to do and why. The consensus seems to be that money is the motivator behind finance. Period. No one, top talent or bottom of the class, seems willing to even consider selling their youth to finance for $55K. For that money we could work in marketing and have lives.

The counter-argument to this is usually, "But finance offers you a shot at true wealth...", but most if not all of us recognize that is true of any career, and that only a select few will ever achieve that, and that without bonuses or insane compensation levels I-Banking is really no more glamourous or attractive than working in operations for Coke.

I like finance, it was one of my favourite courses (and I really should be studying for it right now), but for me if Wall Street compensation drops to match the average across industries, I'm going to go work in corporate. There's plenty of them posted on the job board.

Also, this is my first time trying to use the quotes so go easy on me if I fucked it up.

Dec 16, 2010

Holy shit it worked :)

Dec 16, 2010

Ebb and flow. Wall street will always pay above normal jobs because of the risks and time invested. Right now things are tight and bonuses are unpopular. People forget and banks will find a way to increase compensation in order to get the best talent.

Dec 16, 2010

If bonuses fall off the map, do you think that i-banking jobs will become less competitive then in the future? As many people here have said already, money is the primary driver behind these jobs and I already get a sense that a lot of people nowadays aim to be the next Mark Zuckerberg instead of Henry Kravis. If these two trends continue, could we see a drop off in terms of the number of people who even want these jobs?

Pretty women make us BUY beer. Ugly women make us DRINK beer.

Dec 17, 2010

Talent flows where the money is.

I read an article somewhere that noted the predictive effects of top business school students. During the tech bubble, MBAs were heading to Silicon Valley by boatload to work for tech startups. After that bubble burst, we had the most recent finance bubble and every MBA student in Morningside Heights wanted to work in Banking/PE and hedge funds.

The gist of the article was that you could predict which sectors were "topping" by tracking the desired career path for Ivy league MBAs.

Dec 17, 2010
Kenny_Powers_CFA:

Talent flows where the money is.

I read an article somewhere that noted the predictive effects of top business school students. During the tech bubble, MBAs were heading to Silicon Valley by boatload to work for tech startups. After that bubble burst, we had the most recent finance bubble and every MBA student in Morningside Heights wanted to work in Banking/PE and hedge funds.

The gist of the article was that you could predict which sectors were "topping" by tracking the desired career path for Ivy league MBAs.

And where do they head in the post-Lehman world?

Dec 17, 2010

The disappearing profit centers of prop & al. were not the only support bonuses had. Good old market making and ECM/DCM still bring in a lot of money. Anyway, prop paid the guys at the top, not the analysts.

Most kids in banking are super smart. While most of banking is not rocket science, it does require the attention to detail and learning capabilities that only smart kids can have. Get low-quality youngsters in your bank, and its headed for disaster.

I am inclined to think that compensation will stay way above average for the junior guys. Sure banks are recruiting less and lots of kids are waiting on the sidelines. But the banks don't give a shit. Instead of recruiting 10 kids from Wharton, and 3 from non-targets, they now recruit 7 but solely from target schools. Those kids are still fucking bright and need to be compensated, otherwise they join consulting firms, F500s, or else.

So as much as the demand for talent has been reduced, the talent pool might actually be getting smaller, especially as other industries lure students.

Dec 17, 2010
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Dec 19, 2010

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