Some investment bankers are seeing fatter bonuses this year, but others in areas such as mortgages aren’t doing as well.
The annual bonuses are appearing in bankers’ accounts across Charlotte and elsewhere as they typically do around the first three months of the year. Overall, the incentive payments are expected to be mostly flat compared with a year ago, according to compensation consultants.
The bonuses vary significantly across business lines, reflecting the mixed year the banking industry had in 2014:
▪ Some types of investment bankers could be seeing bonuses rise as much as 15 percent, according to a report from New York-based compensation consultant Johnson Associates. Those bankers are benefiting from a busy year of merger and acquisition activity.
▪ Fixed-income traders are among those expected to see their bonuses shrink by as much as 10 percent, the report says. That comes after too much volatility late last year hurt banks’ fixed-income trading revenue.
▪ Some mortgage bankers could also see lower bonuses this year. Guy Cecala, CEO of mortgage industry publication Inside Mortgage Finance, said some big lenders tie their bonuses to losses or gains in market share. The biggest lenders lost market share last year as nonbank lenders (think Quicken Loans) gained ground.
Bank bonuses are an important part of Charlotte’s economy, as the payouts can be big enough to fuel purchases of big-ticket items, like cars and jewelry. In Mecklenburg County, finance sector wages made up about 16 percent of all wages in 2013, the latest full year for which data is available.
Nationwide, big bonuses for bankers have been a sore spot for the public and some government officials in the wake of the financial crisis and the multibillion-dollar bailouts of large banks by American taxpayers. The bonuses also come at a time of a larger debate about growing income inequality in the U.S.
On the upper end, a CEO at a bank can bring home a bonus worth millions of dollars in the bank’s stock. Toward the lower end, the bonus for an employee in a lender’s mortgage operation might be around $5,000.
Financial-sector wage data for Mecklenburg County suggests that bonuses are making a comeback after slumping following the financial crisis. In the first quarter of 2014, total wages including bonuses for the industry were $2.38 billion, matching total wages for the industry in the first quarter of 2007.
First-quarter total wages for the sector have risen every year since hitting a post-crisis low of $1.37 billion in the first quarter of 2009. First-quarter data is a key window into banker pay, as it’s the period when bonuses tend to be paid out.
Johnson Associates says cash and stock bonuses for the banking industry are expected to be largely stagnant from a year ago. The mostly flat bonuses are driven by two things, said Alan Johnson, managing director of the firm.
“It’s weak revenue growth and continued cost from regulation and litigation,” he said. “Profits are so-so.”
Moynihan’s bonus cut
Publicly traded banks generally do not disclose bonus awards for all but their highest-ranking executives.
Bank of America chief executive Brian Moynihan was awarded $13 million in total compensation for his performance in 2014, a drop of $1 million from the year before as the Charlotte bank’s profit for all of 2014 fell by 58 percent. His stock bonus dropped to $11.5 million from $12.5 million, as he was given fewer restricted shares.
Total compensation for Wells Fargo CEO John Stumpf is expected to be disclosed around the middle of this month.
While some employees who work for Charlotte’s large banks said they were pleased with their bonuses this year, others said they had expected more after another profitable year for their companies.
“It’s demoralizing,” said a Wells Fargo home mortgage employee who works in Charlotte and whose bonus was the same as a year ago. Wells Fargo posted record earnings of $23.1 billion in 2014.
“You get emails on a quarterly basis from the CEO that says how much money we’re making ... and they tell you what your bonus is and you say ‘Really? I busted my butt, and this is it?’ Pretty much much everyone I work with feels the same way.”
Bonuses on the rebound
Though some measures, such as Mecklenburg’s wage data, point to a rebound in overall financial-sector wages, bonuses across the industry generally are half what they were before the financial crisis, because of weak revenue growth, Johnson said.
“For the first time really ever, the view is you cannot make the most money on Wall Street. You may want to go to Silicon Valley,” he said. “Pay is not going to come back anytime soon.”
Still, “compared to the real world, you’re making lots and lots of money,” he said.
One explanation for Mecklenburg Country’s financial sector wage growth since the recession, Johnson said, is the county could be adding more high-paying jobs in the industry.
“There’s clearly been a movement in financial services toward lower-cost places to do business. In the financial services business, Charlotte is seen as an attractive, less-expensive place to do business.”
In the case of big banks’ mortgage units, the lower bonuses come as those institutions lose market share to nonbank lenders and rising interest rates continue to crimp demand for refinancing. The lower bonuses also reflect new government restrictions, Cecala said. “There’s a bunch of new federal regulations that closely control how you pay bonuses to mortgage loan officers.”
One Bank of America employee who works in the bank’s mortgage operation in Charlotte said he was pleased when he learned last month that his bonus this year is higher than a year ago.
“It actually was a fairly impressive bump this year.”
The larger bonus surprised him, he said, as the bank’s consumer real estate lending segment posted another multibillion-dollar loss last year as costly litigation weighed on its earnings. Under CEO Brian Moynihan, the bank has continued to resolve mortgage-related legal challenges, including a $17 billion settlement it reached last year with the federal government.
Bank of America spokeswoman Ferris Morrison said Bank of America uses a “pay-for-performance” approach to determine employee compensation for the year. Various factors, including the performance of the company, employee and their line of business, are taken into account when determining compensation.
Wells Fargo spokesman Josh Dunn said the company’s employee compensation is based on performance “that is aligned with customer and shareholder objectives,” while promoting a culture that avoids unnecessary or excessive risk taking.
Wells Fargo bonuses will start appearing in employees’ bank accounts this month. Dunn said the bank believes the bonuses it will pay are “appropriate given Wells Fargo’s overall performance relative to our business goals for the year, as well as relative to our peers.”
Compensation models change
Drew Quartapella, a managing director at Charlotte investment bank BlackArch Partners, said industry bonuses for 2014 are up about 5 to 10 percent compared with the previous year.
Bankers involved with stocks and mergers did particularly well, he said.
“I’d say compensation is getting pretty close to pre-crisis levels,” he said. “Across the board it’s been a pretty good year for investment banking.”
Banks, however, have changed their compensation models, he said. At large financial institutions, salaries are higher, and a bigger proportion of bonuses is being paid out in stock or deferred compensation rather than cash, he said.
This approach makes bankers stick around to keep their compensation. Paying higher salaries can also discourage risky behavior designed to win bigger bonuses.
Smaller investment banks such as BlackArch, which aren’t public companies, are known for paying bonuses in cash.
“Pay is less complicated for middle-market firms,” he said.
Bonus requirements change
The Wells Fargo home mortgage employee whose bonus was the same as a year ago said the company has changed bonus requirements for next bonus season for some underwriters.
The changes will make it harder to get bonuses, the worker said. She said she has not learned whether her bonus requirements will also change.
“I’m making an assumption that they will,” she said.
She said worked for Charlotte-based Wachovia and remained with Wells Fargo when it bought that lender in 2008. Her bonus has never returned to pre-recession levels, she said.
With Wells Fargo being the largest home lender in the U.S., she said she was hoping her bonus this year would be bigger.
“The mortgage and consumer lending area makes a lot of money for the bank. I think that's why people are just so upset.” Staff writer Rick Rothacker contributed.
Uneven year for bank bonuses
The bonuses bankers will receive this year for their performance in 2014 are expected to be mostly flat overall compared with a year earlier, according to compensation consultant Johnson Associates.
Some types of bankers could see a 15 percent jump in their bonuses, while others are expected to see bonuses decline by as much as 10 percent.
Here is a look at different types of bankers and by how much their bonuses are expected to change, according to a report by Johnson Associates:
Investment bankers (advisory), up 10 percent to 15 percent
Investment bankers (underwriting), up 5 percent to 15 percent
Asset managers, up 5 percent to 10 percent
Commercial/retail bankers, flat
Hedge funds, down 10 percent to up 5 percent
Fixed-income trading, flat to down 10 percent