Posted by Jonathan J. Miller -Tuesday, November 8, 2011, 12:10 PM
The headlines are screaming today that Wall Street bonuses will be off this year about 20% to 30%. That sounds like a lot, and it is, but its not as much as you would think.
Total compensation for the 1% is something like 40-50% bonus and the rest in salary etc., With the increasing regulatory overlay that Dodd-Frank and other regulations that have brought to Wall Street, the percentage of bonus to total compensation may actually decline (not total compensation).
Most people are reading the press pile-on as a 20% to 30% drop in wages. But its not. There’s a steady stream of blame of this compensation structure as the cause of our economic woes. Certainly some truth to that but not the source of the problem.
If 50% of compensation is bonus then a 20% to 30% drop in bonus comp is really 10% to 15% drop in total compensation. If 40% of compensation is bonus then the drop is even less.
Translation: Wall Street pay will be down about 10% from last year seems to be a reasonable data point for the 1%.
That may soften the real estate market for the coming year a bit but I am more focused on job retention on the Street.
Take the Goldman Sachs disclosure last month. Profits plunged 75% but compensation only fell 25% or $292,000 per worker ($540,000 in 2006)
So to repeat. Goldman lost money in the third quarter. It has fewer workers than the same time a year ago because times are tough. But it still found it necessary to allocate a higher portion of revenue for compensation? Come on!
I think I’ve become so cynical about the comp issue and it’s implied impact on the New York City housing market because any negative news such as bonuses or layoffs always seemed to turn out far less damaging than screaming headlines suggest. They are a key economic engine for New York City and yet we don’t really have a grasp on how they are really doing.