Does Wall Street need bonuses now?
People are angry about the AIG bonuses, but do executives really need incentives to stay on the job in this environment? Here's where the financial sector jobs and paychecks are -- and where they aren't.
NEW YORK (Fortune) -- The idea that anyone on Wall Street deserves anything but 40 lashes in the way of pay is a not-uncommon view these days. Speaking about some $165 million in bonuses AIG (AIG, Fortune 500) awarded to employees after the company received $170 billion in federal funding, Rep. Barney Frank, D-Mass., said it was "almost extortion, where they said, 'We know what you need to know and we will quit if you don't bribe us.' " The Street is in such dismal shape, why would anyone who still works there need a bonus to stay on board?
To those who actually work in the business, though, the debate over pay is more about equity than inequity: People should be paid according to what the market needs. And since Wall Street needs big brains more than ever, it may simply have to pay up for them, much as the outside world would rather stick a pitchfork to them instead.
Politics aside, what is the job market in the financial sector really like now? Will Wall Streeters and commercial bankers jump at the chance for any job, even at a fraction of what they once made? Or do they actually have options -- and even stock options -- in this environment? To find out, Fortune spoke to financial services recruiters and pay experts about where the jobs and paychecks are -- and where they aren't.
Goodbye, average Joe. Time was, any "B" or "C" player could pull down a mid-six figure salary. Not any more. "It's probably the worst hiring [environment] I have seen in 15 years," says Michael Karp, CEO of Options Group, a recruiting firm that specializes in financial services. Sectors such as capital markets and proprietary trading are dead, and anyone who isn't a star is going to have a horrible time landing a job, let alone drawing down 500 grand. Even in areas that are growing, such as financial advisory services, the schmoes are competing with the studs. Those who do get a job can expect pay packages about 40% lower than they would have earned in their last jobs.
Go small or go international. Still, opportunities are out there for the top players, such as M&A bankers with great relationships or anyone with restructuring experience. Boutique firms such as Evercore, Greenhill, Perella Weinberg and the like are using the crisis to steal away top talent from TARP banks and other public companies where their brand value has dropped significantly while job pressures have increased. Private equity firms that focus on restructuring troubled companies, too, are staffing up. "It's a selective hiring of brand-name individuals," says Vanessa Bailey, founder of search firm Cressida Partners.
At the same time, large international banks such as Deutsche Bank (DB) that are not subject to TARP restrictions are offering very aggressive packages to, in some cases, whole teams of bankers. Case in point: DB's hiring away of 12 members of Bank of America (BAC, Fortune 500)/Merrill's financial investment banking team in February -- an audacious move that has generated a lawsuit from B of A, claiming a "raid." These folks are obviously perceived to be very valuable, even in this environment.
It's not just about the "make-whole number" anymore. Time was, any firm that couldn't cover the value of a Wall Streeter's accumulated stock and then some wouldn't be able to pry him or her away. Today, that "make-whole number" is typically much lower, as losses in the markets mean accumulated options and restricted stock once valued at $20 million may now be worth $2 million or $3 million. This means smaller, less prestigious firms that aren't subject to regulation and can offer a straight commission in most cases -- without retention bonuses -- are selectively upgrading their staffs.
"We are just getting flooded with calls from people that you would think are not moveable because the environment at the big banks is brutal," says one managing director at a boutique firm.
"The Street in general has returned to a pay-for-performance culture," adds Burke St. John, vice chairman and global head of the financial services practice at search firm CTPartners. As opposed to pay for non-performance, that is.
The places that need the smartest people are losing them. This is where things really get tricky. Sure, the firms in the most trouble got that way because of decisions their executives made. But it's also true that those firms need experienced hands to stay on and help them work their way out of the mess they're in.
"These are the people who know where the bodes are buried," says Karp. "You need to encourage them to work through this. To build up a new management team will take that much longer."
At TARP firms, many employees may actually see an increase in their salaries (if not their more-important bonuses), as the $250,000 salary cap is seen by many as a floor instead, says Jim Reda of James F. Reda & Associates, an executive pay firm. Nevertheless, many are looking to jump ship as fast as possible, hoping to escape an atmosphere of regulatory confusion, political outrage and lack of clarity. One managing director at Merrill says practically everyone he knows on his desk is looking to leave, in part because of the restrictions on pay and in part because of the uncertainty of what their jobs are supposed to be, with all of the potential new regulation.
"It's an escape from the omnipresent, morale-sapping, black cloud of TARP-dom, even if the money's less of a wow factor," explains recruiter Bailey. This is why Goldman Sachs (GS, Fortune 500) hinted that it would be paying off its loan as soon as it can -- and why many other banks may move to do the same.
If Wall Streeters are still being overpaid in this environment, at least we can take comfort that our taxpayer dollars will likely be going to pay smart, motivated people. It's better than going to bored, unqualified ones -- isn't it?