Cash Registers Jingle to Wall St. Bonuses
At the Sherry-Lehmann wine shop on Madison Avenue, $500 bottles of Bordeaux are selling at a clip that owner Michael Aaron figures is 7% ahead of last year’s pace.
“It’s instant gratification,” Aaron said last week, “and why not get it?”
If it’s December, it must mean that Wall Street securities firms have started shelling out their annual bonuses, the discretionary six- and seven-figure payouts that can account for up to 90% of an investment banker’s or bond trader’s income.
Bonuses will be up an average 8% on Wall Street this year, according to the Securities Industry Assn., a trade group. Analysts said some firms, such as Goldman, Sachs & Co., Lehman Bros. and Morgan Stanley, would see bonus increases in the healthy double digits.
Better still, a year-end flurry of big corporate acquisitions (Sprint Corp. buying Nextel Communications Inc. and Oracle Corp. swallowing PeopleSoft Inc., to name two) and initial public stock offerings will get next year’s bonus pool off to a strong start when the deals close in early 2005.
“It’s not euphoric, but the feeling is, we’re prosperous again,” Wall Street headhunter Henry G. Higdon said.
The bonus money is a far cry from the bull-market peak of four or five years ago, but it’s welcome news just the same for New York, where the securities industry, to borrow ex-Yankee slugger Reggie Jackson’s self-description, is the straw that stirs the drink.
Directly and indirectly, Wall Street accounts for 26% of New York’s sales and income tax revenue, according to Ray Orlando, spokesman for the Mayor’s Office of Management and Budget. He cited the taxes paid by waiters and bartenders at a restaurant that depends on Wall Street trade as an example of an indirect effect.
Last year bonuses paid by New York-based securities firms reached $11 billion, according to the New York state comptroller’s office. That represented a 25% jump from $8.6 billion in 2002, though it was well below the 2000 peak of $19.5 billion.
If the predicted 8% increase is correct, the 2004 bonus pool will be nearly $12 billion.
Experts caution that bonus estimates are inexact, because the firms report only an overall number for total compensation. And for the majority of firms that operate on a calendar-year basis, bonuses won’t actually be paid until January or February, after the companies complete their fourth-quarter earnings reports.
Senior Wall Street professionals tend to make base salaries in the $200,000-to-$250,000 range. Their bonuses vary widely -- from the mid-six figures to well over $1 million -- depending on subjective performance measures and the profitability of their sector, according to compensation experts.
The strong bond market of the last few years has put bond traders and underwriters on top of the heap, with salaries for managing directors averaging around $1.5 million, says compensation consultant Alan Johnson. Because the sector has been strong for years, bonuses will rise by only 5% to 10% this season, he said.
Investment bankers who might have been earning $1.5 million at the peak of the bull market will probably take home $800,000 to $900,000, Johnson said. That would include bonuses of $600,000 to $700,000, up perhaps 20% from last year, he added.
Though nobody sheds tears for people at such salary levels, Johnson noted that many Wall Streeters are still dealing with personal finances that were badly damaged by the slump.
“They always spend beyond their means,” he said. “When you had a $1.5-million income, you had a $2-million lifestyle.”
Thousands of securities pros lost their jobs after the late-1990s stock market bubble collapsed, and the ones who remain are more seasoned -- and more cautious.
Brian Miller, owner of Manhattan Motors near the Chelsea waterfront, said the Wall Street bonus babies were mainly kicking the tires of the Bentleys, Porsches and Lamborghinis in his showroom -- most flashing sticker prices well north of $100,000.
“You’re not seeing those real young guys who used to come in here and blow their first bonus on a Porsche,” Miller said. “I think those guys are out of the business.”
Still, sales are stronger now than a year ago, Miller said. The dealership is on track to sell about 1,000 cars this year, up from around 700 in 2003. And the really big money -- executives making millions of dollars in bonuses -- is still around, as shown by the strong sales of ultra-high-end cars. Miller expects to sell 50 Rolls-Royces this year, about double last year’s total.
Meanwhile, the market for summer rentals in the Hamptons seems to be off to a quicker start than last year.
Agent Gary DePersia at Allan Schneider Associates in East Hampton said he had already landed eight rentals for next summer, most of them “high-end,” which he describes as waterfront or estate properties renting for $150,000 a month or more. At this point last year, DePersia said, he had only three signed rentals.
DePersia and other agents acknowledged that low interest rates could depress the rental market because they make it more attractive for some people to buy instead.
At a slightly less lavish spending level, Krups Kitchen & Bath in Manhattan’s Flatiron district is getting a lot of calls about barbecue grills priced at $4,000 to $7,000, said owner Mitchell Weissberg. If you have a Viking stove in your kitchen, why not put one on your patio too?
Krups gets most of its bonus-related spending in January, Weissberg said, but early indications are that it will be a strong season.
“There’s certainly going to be some frivolous spending going on,” he said.
In addition to $5,000 plasma television sets and $2,500 Dornbracht faucets, one item getting some attention this year is a $5,000 Japanese-made toilet with an electric eye. The toilet lifts its lid as you approach, and if you don’t sit down within a few seconds, it lifts the seat. After you’re done, it reverses the process.
“You will never get in trouble for leaving the seat up,” Weissberg said.
Such unusual products appeal to the vanity of Wall Street types who are competitive about all things, including having the hottest new gadgets, he added.
You might think that Wall Street types would be tough negotiators, but Miller, the car dealer, said it isn’t so.
“They’re basically salespeople,” he said. “Salespeople are easy to sell.”
