Wall Street’s bonus season has arrived, and the bankers who last year generated record-breaking earnings for companies like Goldman Sachs are reaping the rewards.
Goldman and JPMorgan Chase updated investment bankers and traders this week on their pay packages, part of an annual ritual that can leave workers elated — or discouraged — when they learn how much their 2021 efforts have been appreciated.
Goldman’s investment banker compensation pool increased by 40% to 50%, according to people with knowledge of the situation. At competitor JPMorgan, the bonus pool for this category increased by 30% to 40%, other experts said, confirming a Bloomberg report.
“I know bankers who are exceptionally happy, they’ve generally been the best performers this year, as opposed to traders,” said David McCormack, head of recruitment firm DMC Partners. “This is the highest compensation that many people have seen in the last ten years.”
Wall Street salaries have risen everywhere from first-year bankers to partners and top executives after a two-year boom in mergers and market activity sparked by the Federal Reserve’s response to the coronavirus pandemic. Wage inflation was a key theme last week as banks released fourth-quarter results and analysts feared rising spending will hurt profits.
The increase in banks’ bonus pools reflects their results for 2021. At Goldman, for example, investment banking revenue rose 58% year over year to $14.9 billion, driven by a high level of completed mergers and IPOs. JPMorgan said last week that its investment banking fees rose 39% to $13.2 billion in 2021.
Rainmakers Pay Bonanza
The rise in compensation pools doesn’t tell the whole story. Managers use the pools to hand out bonuses to individual employees, and their incentives are determined by how much they have contributed to team results. Rainmakers who source and close billion-dollar deals get paid the most.
Goldman partners in areas that have performed particularly well, such as technology and healthcare investment banking, made between $12 million and $15 million last year, McCormack said. Senior partners who run departments made even more, he said.
High-performing executives who are one tier below partners brought in $5 million to $7 million, he said.
And the Goldman numbers don’t include special one-time awards for partners, which can amount to multimillion-dollar sweeteners, according to those familiar with the situation. According to a source, the bonuses have been dubbed PPA, or Partnership Performance Awards, by the bank.
“We wanted to remind partners how valuable they are and express how exceptional this year has been,” said one person.
wage inflation
At Goldman, the increase in banker salaries reflected the increase in total compensation for the company’s 43,900 employees. Spending on salaries and benefits increased 33% to $17.7 billion, which translates to $403,621 per person, compared to $329,000 in 2020.
At JPMorgan’s corporate and investment bank, payroll costs rose 13% to $13.1 billion, or $193,882 for each of the division’s 67,546 employees.
“There’s a lot more compensation out there for top bankers, traders and executives who I should say have done exceptional work over the last few years,” JPMorgan CEO Jamie Dimon said on a conference call last week. “We will be competitive on pay. If that eats into margins for shareholders a little bit, so be it.”
Wage inflation reached every corner of the investment bank. Dimon himself earned a 10% raise to $34.5 million last year, the bank said in a filing Thursday.
The pressure to retain workers amidst fierce competition for talent has even permeated the youngest college graduates. JPMorgan recently increased first-year base salaries for investment banking analysts to $110,000, matching the rate Goldman set last year, according to sources corroborating a Financial News report.
But for every banker celebrating a windfall, there are many others who are, or will be, deeply disappointed after hearing their numbers. Michael Sloyer, a former Goldman trader turned executive development coach, shared his own insights into the intensity of banking culture.
“Sometimes money became a proxy for my worth as a person,” said Sloyer, who spent 11 years climbing the ranks at Goldman and eventually rose to CEO. “As the number grew over the years, the comparisons only grew with the people around me. It could feel like a never-ending treadmill.”
Continue reading: Wage inflation has arrived in a big way and Jamie Dimon says CEOs ‘shouldn’t be crying’.
