In some ways, Blackstone CEO and co-founder Stephen Schwarzman is like most of the folks who go to work at a Wall Street financial services firms.
His annual salary — $US350,000 — hasn’t changed since Blackstone went public in 2007.
But Schwarzman isn’t going to find a sympathetic ear. In 2014, his total compensation — a number that totals annual salary, annual bonus, dividends, and long-term incentives like equity — rose to about $US690 million. By the end of this year, he could be taking home $US1 billion.
The tale of flat salaries is one that’s all too familiar for Wall Street’s professionals these days. In New York, it still pays to work in finance, especially as the economy improves and the financial markets rebound. But the players seeing their total comp boom are Wall Street’s titans (like Schwarzman) and the young talent just starting their careers.
Indeed, the young talent is relatively cheap compared to veteran bankers who haven’t made it to the top of the heap. As Wall Street continues to find ways improve profitability, this ‘middle class’ of finance is going away.
Annual salaries on Wall Street remain below post-crisis levels
The typical compensation package for a Wall Streeter consists of at least an annual salary and an annual cash bonus.
While statistics say Wall Street bonuses are on the rise, Wall Street salaries aren’t keeping pace. In fact, according to New York City Independent Budget Office Data, here, securities sector average wages have struggled for seven years to catch back up to where pay was pre-crisis. Look below. They haven’t caught up yet:
Fat annual bonuses confirm cash is king
According to compensation experts, while total compensation has stagnated at top banks for dealmakers and managers, bonuses have risen substantially in many places.
Investment banks go out of their way to keep staffing specifics vague and opaque, said Jessica Lee, director with executive recruitment firm Options Group. But it’s broadly understood that one of the best ways to attract the best talent is to offer a competitive annual cash bonus incentive.
That, some bankers have said to Business Insider, is what makes smaller investment banks like Perella Weinberg Partners more attractive to those who would rather avoid accepting deferred compensation (e.g. stock options and restricted stock that vest over several years) that, in some instances, is dependent on the bank’s overall health long-term, more than an individual’s performance.
And it may be especially true right now: a separate survey from the Office of the State Comptroller released earlier in March shows industry bonuses are tracking all-time highs.
To industry spectators and outside of the banking industry, it may seem garish that the average bonus on Wall St. is three times the average American family’s total household income.
Equity-based deferred compensation is how Wall Street’s richest get richer
What differentiates the senior Wall Street pros from their younger counterparts is the terms of their deferred compensation, which usually includes a lot of equity through restricted stock and options.
The majority of Schwarzman’s 2014 pay came through dividends, which he is due thanks to his double-digit stake in Blackstone. His company generated a profit of $US4.3 billion last year; Schwarzman’s stake entitled him to more than $US570 million.
There is no investment bank CEO who owns as much of a bank as the head of Blackstone. However, Goldman Sachs’ Lloyd Blankfein, Morgan Stanley’s James Gorman, JP Morgan’s Jamie Dimon and Citi’s Michael Corbat have all raked in 8-figure annual total compensation packages as their more modest 7-figure annual salaries have been combined with equity-based compensation like options and restricted stock.
This deferred, or long-term, compensation typically vests over time, taking up to five years to totally pay out. Depending on the bank, deferred comp only begins at a certain rank (some places, it begins for vice presidents, at others, the minimum rank for eligibility is managing director).
“They have to stay longer and longer to get the same paycheck they’d have gotten a few years ago,” said Matan Feldman founder and CEO at Wall Street Prep, referring to deferred compensation regulations implemented at Wall Street’s biggest banks post-crisis.
Investment banks that created elaborate compensation plans to simultaneously pay executives millions, while still satisfying new regulations.
“It doesn’t seem there is any consistency for what they have to do to compensate executives,” says Jessica Lee, director with executive recruitment firm Options Group.
Still, if you’re willing to commit and play the long game, you can do very well as a senior executive at a Wall Street firm.
Wall Street is paying up for the freshest talent and looking at outside the priciest cities for cheaper talent
The one place compensation experts agree pay has risen is among the youngest professionals.
First- and second-year analysts generally earn in the $US115,000 to $US135,000 range, according to data maintained at WallStreetOasis.com, a site that focuses on finance sector employment data. First- and second-year associates earn in the $US160,000-$US210,000 range. Vice presidents make around $US500,000 annually and managing directors’ pay has grown to as much as $US600,000. All of these tallies factors in bonus alongside annual salary.
As Wall Street firms look for ways to boost profitability, they have been letting go of mid-level employees and focused on boosting the ranks of cheaper, younger talent.
They have also been looking outside the expensive metro areas to recruit.
Post-crisis, the banking industry has added jobs, but in New York, according to data from the state labour department, banking and securities jobs are down roughly 20% to date. Part of this has come as top banks have jettisoned thousands of jobs elsewhere in the U.S.
On the flip-side, some say, Wall St. pros are finally benefiting from workforces at banks and elsewhere streamlining staff headcount in the wake of the financial crisis.
“Outperformers have a better life than they would have had because they’re not carrying mediocre people,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business, adding, still “it’s a little harsher now.”