Tue 22 Jan 2008
Only Bonus Babies Really Know The Fine Print
Posted by Jonathan J. Miller under Economy , Psychology[6] Comments
One of the biggest questions of the New Year covers how big Wall Street Bonuses will be and what will be their impact on the New York City real estate market.
Last week the official bonus word came down from the Office of the New York State Comptroller’s Office. Here’s an attempt to parse out the relevant info:
- Average Wall Street bonuses in 2007 declined 4.7% from record levels in the prior year to $180,420.
- The securities industry wages to New York City employees totaled $33.2 billion, 2 percent less than the record $33.9 billion in 2006.
- Wall Street added 9,600 jobs during the first 11 months of 2007, a 5.4 percent increase.
I see more restricted stock as part of total compensation on the bonus horizon.
- Bonuses in 2007 will be dramatically lower for workers in mortgage-related businesses, but higher in areas such as mergers and acquisitions, equity underwriting and trading.
- Employee compensation, which includes bonuses, consumed 61 percent of the firms’ revenues in 2007, up from 45 percent 2006, reflecting the firms’ efforts to retain high-performing employees.
Bonus compensation has been hovering in the low 40 percentile of total compensation for several years. The sharp increase in the percentage indicates weakness, not strength in the financial condition of the financial services sector (the denominator got smaller).
Will this compensation make its way into the real estate economy? I don’t see how it can’t.
Will real estate see the same level of activity as last year’s record with this near record compensation level? I don’t see how it can.
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January 22nd, 2008 at 3:02 pm
What a great post. Thank you!
January 22nd, 2008 at 4:43 pm
The 2007 numbers are only relevant for firms with payouts in 2007 (typically those with fiscal years that end in November). Many, if not most, firms cut 2007 bonus checks in 2008. While some business lines did well in 2007 (M&A for example — although 2008 is looking weak), corporate and mortgage bond sales and trading are looking at down 50% to down 100% bonus numbers.
January 22nd, 2008 at 4:46 pm
Thanks Jon, however, your comment applies only to the percentage of total compensation chart, not the total bonus dollars. Am correct?
January 22nd, 2008 at 6:48 pm
Maybe I am not understanding you, but if the 2007 stats reflect mostly bonuses paid on 2006 earnings, then this data is a year old. Even for those houses with Nov year-ends, there is little chance that they can finalize numbers and cut checks in 2007. Lehman, with a Nov. year-end writes checks in January. Foreign banks stick to a calendar year and don’t even announce numbers until late-January. Maybe this data is based on polling a number of employers — but I’d be suspect.
I expect that the data which will come out next January (and includes a lot of bonus payments received in Jan/Feb 2008) will reflect down a lot more than 2%.
January 22nd, 2008 at 11:13 pm
There was a dramatic rise in the amount of restricted stock paid as a percent of the total bonus this year, so while bonuses may be near record levels, the cash part (that could be spent on RE in the near term) is down dramatically. Further, 2008 does not look like a great year in most areas. Expectations for future bonuses are down for most people on the street…
January 23rd, 2008 at 3:07 pm
Where are their customer’s houses?