Party time returns to the City with record bonuses

NEWS ANALYSIS Last year a depressed Square Mile tightened its belt, but this year top firms may well reward high-flyers with pounds 1m-plus payouts
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The Independent Online
YESTERDAY WAS the big day for the lucky few at the London offices of Goldman Sachs, the giant investment bank, which kicked off what promises to be a bumper annual bonus season for thousands of City high flyers this year.

City head-hunters who gather like vultures at this time of year in the hope of luring those who feel that their bonus does not adequately reflect their value to jobs at rival firms are likely to be severely disappointed. Most admit that bonuses are likely to be anything between 20 per cent and 40 per cent higher than last year, courtesy of a global merger boom with has topped $3 trillion this year and yet another record-breaking year in the stock markets.

One City banker said yesterday that perhaps 50-100 senior staff in banks like Morgan Stanley and Goldman Sachs stand to net pounds 2-5m in bonuses, and perhaps a dozen around the City could be heading for pounds 10m plus.

Bonuses this year are expected to be more widely spread. "Our industry used to be thought of as a place to get rich quick but the real money is being made by Internet entrepreneurs," said one City insider. Another said: "If you don't get bonuses this year, that is a pretty clear message that you are not wanted."

It is a far cry from last year when the $3.4bn near collapse of Long- Term Capital Management, the giant hedge fund, badly hit earnings and led even solid firms like Merrill Lynch to shed staff. Since those that remained were thankful to stay in work, many firms were paying lower bonuses than in previous years and getting away with it.

But this year the big firms have been making money hand over fist, and in virtually all areas of their businesses.

Once again it is the American firms which are setting the pace. The large ones have 31 December year-ends. They have a fair enough idea where the money is being made, and will be able to tell their staff before Christmas what their bonuses are likely to be. The European-owned firms like Warburg Dillon Read usually wait until March. Of the three US firms that dominate Wall Street, Merrill Lynch tends also to wait until after Christmas.

Rumour has it that the bonus pool for Goldman Sachs staff in Europe will be around pounds 100m. That may well be an underestimate, as the firm is heading for profits in its first year as a publicly quoted company of more than $2.5bn. Morgan Stanley has done even better and is likely to have made more than $4bn for 1999 as a whole. Their staff will also be hearing soon.

"Most years there is a certain downwards massaging of expectations around October/November with people being called in for assessments and told that things in their area might not have been as good as they might have expected," said one Goldmans insider. "This year there has been nothing like it. The stage is set for a very good year."

For the first time, Goldmans will paying out a significant share of bonuses in stock.

For the top firms, bonuses worth 100 per cent or more of base salary will be commonplace this year. For a reasonably good stock analyst on an average pounds 150,000 a year package that will be enough to buy a Porsche.

The real high-flyers, such as analysts who bring in corporate deals and who usually get a direct share of the advisory fee, may well be in line for a million pounds or more, particularly if they are in a sector like telecommunications or the Internet where the deal flow has been thickest. Similarly, heads of business areas like equities or mergers and acquisitions in the very top firms will also be expecting seven-figure bonuses.

The picture as ever is complicated by those who have recently moved who will have been offered guaranteed bonuses, and those whose guarantees have expired and who may in be for a rude shock if their performance is not judged up to scratch.

The big payouts, of course, rarely take the form of cash bungs. More senior people often prefer to take it in shares and options. When Goldmans was a partnership, partners did not touch the money until retirement. It was kept in an account to be used as capital in the firm. Now the firm is quoted, efforts are being made to instill a similar ethos by encouraging staff to keep bonuses as equity in the firm.

Although the tightening grip of American firms on big-ticket deals in Europe means pay scales creeping up towards US levels, the likelihood still is that anything doled out here will pale in comparison with rewards on Wall Street. In New York, some 2,000 executives are reputedly in line for $1m or more. Some 75 are likely to get as much as $10m.

But spare a thought for those who won't be so lucky. Those in the front- line in top firms - traders, stock analysts, corporate financiers - can all point to deals they have done, or business brought in, and insist on their rightful share. Back-office and support staff, however, without whom it could not happen, do get bonuses, but only at the whim of those higher up. And then there are the lesser firms, who have not done so well in the deal bonanza. For them Christmas will not be quite so merry this year.