Do End of Year Bonuses Signal Musical Chairs This Year?

While the holiday season is behind us there is one more annual tradition to prepare for: the game of musical chairs in the finance industry. Most Wall Street firms pay annual bonuses to employees either at or shortly after the end of the year. Anticipation of these payments, which may account for the majority of total compensation, tends to cause employees to time their job hunts to minimize the amount of bonus money they leave behind with a former employer. Thus, the further Wall Street gets into each calendar year – and the closer bonus payments come – the more reluctant workers become to switch jobs in order to avoid “leaving money on the table.” Once bonuses are paid, however, many workers feel the time is right (hopefully by choice) to make their move– often waiting only long enough to ensure that their checks have cleared before tendering their resignations.


The Timing of New Legislation

But the 2009 bonus season is unlike any others, with new wrinkles such as the pay restrictions imposed on banks that have received government aid. The White House’s Special Master for Compensation (a.k.a. “Pay Czar”) Kenneth Feinberg has already completed a review of the pay packages for the top 25 highest paid employees at those firms that have not yet paid back the government aid provided during the past year. And more recently, on December 21, Feinberg approved a request by AIG to grant an executive a long-time compensation package that included stock options with a current value of $3.26m. Michael Karp, co-founder of recruiting firm Options Group, predicts that pay packages will vary widely between firms that have paid back government aid – often with taxpayers profiting – and those institutions still relying on government infusions. Most firms insist that they need to pay top dollar to key employees to avoid their being poached by competitors.   


So We Wait and See…

The timing of these compensation reviews is particularly interesting as the annual Wall Street talent swap may now proceed with a two-tiered compensation structure.

  • Will TARP banks experience a brain drain? If so, can they replace lost employees with comparable talent?
  • Might some unexpected winners emerge in the fight for financial talent?
  • Will pay restrictions need to be relaxed, as some firms that have been unable to fill key positions have urged?  Or will these restrictions matter at all in the near-term following a cycle of layoffs and a market with a 10% unemployment rate?

What do you think? How will Feinberg’s guidelines impact the bonuses (and more rightly overall compensation) of the traders, analysts and others on Wall Street? Will this ultimately lead to more or less of job hopping on The Street?


To reach Donna:

Phone: 212.584.5479
Twitter: @donnamcsorley