“You know those big paydays on Wall Street?” he says, typically waiting a beat to deliver the punch line. “I have something to do with them.”
Mr. Johnson, a consultant who speaks with a light twang from his native Alabama, has never worked for a bank. Nor will his company, Johnson Associates, pay million-dollar bonuses to any of its 12 employees this year. But as one of the nation’s foremost financial compensation specialists, Mr. Johnson is among a small group of behind-the-scenes information brokers who help determine how Wall Street firms distribute billions of dollars to their workers.
“The misunderstanding many people have about this industry is that pay is whimsical,” Mr. Johnson said in a recent interview at his company’s Manhattan office. “It’s not.”
Compensation consulting is an obscure corner of the management consulting industry, where practitioners operate in the shadows of high finance. Large Wall Street banks, as well as hedge funds and private equity shops, rely on such consultants to help them structure bonus payouts and devise severance packages, and to provide data on what competitors pay.
“You can give them some insights,” Mr. Johnson said of his clients, who have included the boards of Credit Suisse and Lehman Brothers. “You can say to them, ‘You’re being too wimpy this time,’ or, ‘You were being too aggressive last time.’ ”
This year’s bonus season, which began in late December and will continue until February at some companies, is expected to be the worst for industry employees since 2008, as regulatory measures and economic uncertainty have cut deeply into profits and made pay pools smaller.
In his annual compensation survey, a closely watched report that was sent to roughly 800 of the company’s clients in November, Mr. Johnson estimated that bonuses in the industry would fall 20 to 30 percent from last year’s levels.
That would still leave employees at firms like Goldman Sachs, where the average worker took home $430,700 in total compensation in 2010, much better off than workers in other industries. But it would represent further slippage from the sector’s highs before the crisis.
Bonus math in a financial downturn is a delicate art. Because the payments typically make up at least half of an employee’s yearly pay, erring on the low side can mean losing a star performer to a rival firm.
“Someone on Wall Street might go apoplectic when he heard he got $3 million and another guy got $3.5 million,” Mr. Johnson said.
Decades ago, banks determined bonuses according to a relatively simple formula that took into account an employee’s seniority and performance. After the financial crisis, as politicians and regulators began criticizing what they saw as eye-popping pay packages, those all-cash bonuses went out of fashion.
Now, Wall Street pay packages routinely include deferred cash payments and restricted stock awards that can be redeemed only after multiyear waiting periods.
The increased complexity of Wall Street compensation has been a boon for consulting businesses, which can charge hundreds of thousands of dollars a year for advice. Goldman Sachs has used the consultancy Semler Brossy; Morgan Stanley’s directors have relied on the Hay Group; and Bank of America’s board has used the services of Frederic W. Cook Company, according to public filings by those banks. All three consulting companies, and all three banks, declined to comment.
Some consultants are hired by banks merely to provide data on industry compensation trends, or to rubber-stamp the decisions of the banks’ internal compensation teams, while others are more directly involved in setting pay levels.
“Directors don’t want to be embarrassed in the media by a compensation decision,” said Yale D. Tauber, a compensation consultant who works with the board of Citigroup, among other clients. “They’re the guardians of investors’ capital.”
Article source: http://feeds.nytimes.com/click.phdo?i=c6222400f7df20922df72fc09fe0966c
Speak Your Mind
You must be logged in to post a comment.