Ten million dollars, $15 million, $25 million, more: Big money is back on Wall Street.
Not since the late 2000s, when lavish bonuses rained down before and after federal bailouts, have pay packages at U.S. investment banks swelled as much as they have right now.
Goldman Sachs Group Inc. just finished spending an average of 23% more per employee for the past year -- the biggest jump in more than a decade. And that figure is muted compared with how dramatically bonuses have gone up for dealmakers, with Morgan Stanley, JPMorgan Chase & Co. and Goldman raising them to the tune of 30%, 40% and 50%.
After years of restraint, bank leaders are once again projecting a “whatever it takes” approach to compensation, vowing they won’t be outbid for top performers, lest they lose an edge in a hot market for trading and deals. That has their employees in Manhattan uncorking $2,000 bottles of wine at the fastest pace in years, buying bigger homes in fashionable TriBeCa, and snapping up yachts.
It’s a long-awaited moment for a generation of rising executives who’ve spent years missing out on the riches reaped by those before them.
Take Goldman’s chief executive officer, for example.
When David Solomon was preparing for a congressional hearing after taking over as CEO, his coach posed a question: Would he be game to pay more in taxes if the government spent it wisely on social services? At first, Solomon fumed. The coach explained that JPMorgan’s billionaire leader, Jamie Dimon, had publicly said he’d gladly agree. Solomon's retort: Easy for Dimon to say that, he's already made his money.
The exchange was described by three people with knowledge of the matter. A Goldman spokesperson declined to comment.
In recent days, Dimon, Solomon and Morgan Stanley’s James Gorman were each awarded about $35 million for their work last year — more than any of their banks have lavished on a CEO since 2007. That, in turn, has lifted the ceiling for money makers within those firms.
Wall Streeters are buzzing about the swelling number of people scoring eight-figure pay packages this year. The top earners at Goldman will be approaching $30 million, with some even exceeding that mark, people familiar with the matter have said. Those rewards included special one-time payouts for a few hundred top executives.
And at Jefferies Financial Group Inc., pay for some of the best performers has surpassed $25 million, people with knowledge of the matter said. There’s a notable feature: Executives can elect to get paid in cash, unlike the stock-heavy compensation at larger rivals.
Of course, even in lean years, Wall Streeters fare better than people in many other swaths of the economy.
“Every one of us in our industry is overpaid,” Jefferies CEO Rich Handler said. “When you go home and look at yourself in the mirror, every one of us should count our lucky stars. It’s not just in 2021, I’ve said the same thing in very challenging pay periods as well.”
Industry veterans point to 2009 as the last time when U.S. investment banks opened their wallets so generously. That time, it triggered a swift rebuke from lawmakers. They accused bankers of rewarding themselves after taxpayer-funded bailouts that saved the industry from oblivion and helped markets rebound, as the rest of the economy struggled.
There are some echoes of that in the pandemic. As commerce shut down in 2020, government programs and Federal Reserve stimulus propped up the economy, unleashing a frenzy of trading and corporate dealmaking.
Investment banks, worried about the optics, showed some restraint when setting bonuses at the end of that year. But as the boom rumbled into 2021, Wall Streeters demanded more and began defecting, pushing firms to pay up.
“As a full-blooded progressive, I can appreciate how the public would feel cynical about Wall Street’s efforts,” said Jon Corzine, the former Goldman CEO and ex-New Jersey governor. “But it is a necessity in the context of the competitive nature of hiring and retaining the best talent.”
Might banks use this year’s round of raises to address the gaps in pay that impact women and minorities? One reason that’s unlikely is that Wall Street compensation is closely tied to job titles and the revenue they generate.
The biggest bonuses will go to the top performers and are “not going to be spread like any kind of peanut butter,” said Betsy Duke, a former Federal Reserve governor who was also chair of Wells Fargo & Co.
“The difference in total pay for women and minorities is due to where they are organizationally,” she said. “The lower-pay levels tend to be more heavily weighted with women and minorities.”
One reason banks are under so much pressure to sweeten rewards for multimillionaires is that the sector has slipped behind other parts of the financial and technology industries.
Back in 2007, the head of Goldman Sachs was one of the highest-paid executives in the broadest definition of Wall Street. Today, when it comes to pay, banks occupy a relatively impoverished corner of the financial metaverse. Private equity firms dole out far more to their leaders. And then there’s the riches being minted at Silicon Valley ventures and in cryptocurrencies.
“In different eras, Wall Street really stood out alone,” Corzine said. “That’s not the case now.”
He would know: About 30 years ago, when Corzine was at Goldman, a leaked survey of senior leaders showed their worries about a culture of greed taking hold: “There is a need to redesign the compensation system. People have gotten rich very quickly,” one partner said. “They tend to get more difficult.”
Wall Streeters are starting to spend their windfall. Real estate agent Frances Katzen recently helped a client upgrade from his two-bedroom apartment in TriBeCa to his building’s five-bedroom penthouse with a 3,000-square-foot terrace, at a price just under $8 million that had previously been out of his comfort zone.
“He tapped me on the shoulder around November,” Katzen said. “He said, ‘I know what my vesting schedule is and what I’m probably going to get paid, and I feel really good about it based on my production as a team.’”
At Babbo in Greenwich Village, sommelier Juan Pablo Escobar keeps adding to the list of big-ticket Barolos customers have ordered in the past week or so, many costing a few thousands dollars — such as 1.5 liters of 1985 Bartolo Mascarello for $3,700.
A strong pipeline for mergers and recent bouts of trading volatility show the party among bankers and traders could continue well into 2022.
At Lola Taverna in SoHo, “we had a loyal client buy two magnums of Cincoro Anejo to share with everyone in the house,” co-owner Cobi Levy recently recalled. The price for the tequila: about $1,850 apiece. “He had just closed a monster deal.”
Even Goldman chief Solomon is ready for a public celebration, after his pay packet was doubled from a year ago.
He’s scheduled to hit the DJ circuit again in sunny Los Angeles this month at an event billed as the “elite playground of partygoers.”