February 24, 2014

Bank bonuses rise, but not to boom-time levels

Big banks just finished their best year in half a decade, and Charlotte-area bankers are sharing in the wealth – up to a point.

Big banks just finished their best year in half a decade, and Charlotte-area bankers are sharing in the wealth – up to a point.

Annual bonus checks are landing in bank accounts across the city, and they’re tending to be larger than last year, highlighting an improving economy and higher bank profits. Still, the year-end payouts haven’t returned to the levels they reached before the financial crisis.

Among those eligible for bonuses, the payments vary greatly among job functions, lines of business and individual banks. But in general, bonuses are expected to be up between 5 and 10 percent across the financial industry, compensation consultants say.

For recent business school grads at an investment bank in Charlotte, that can mean a bonus of $100,000. Senior executives can expect bonuses of $1 million or more. Farther down the ranks, a project manager might receive a few thousand dollars.

Bonus season plays a crucial role in the Charlotte economy. Though the financial sector makes up less than 10 percent of Mecklenburg County’s workforce, it pays closer to 20 percent of its wages. The largest chunk is paid out in the first three months of the year, when employees receive their annual incentive pay.

Upper-level executives who get bonuses paid in cash and stock are also benefiting from the dramatic rise in bank stocks over the past two years. These bonuses tend to be paid out in shares that vest over a period of years. A stock award from Bank of America worth $500,000 in early 2012 would now be worth more than $1 million.

CEO Brian Moynihan was awarded $14 million for his performance last year, a 17 percent increase from the year before, the bank disclosed last week. His six top executives, four of whom are based in Charlotte, all got bigger stock bonuses than last year as well.

But some employees among the rank and file in Charlotte’s banks said in interviews they are underwhelmed with their own bonuses. Battered by three years of seeing colleagues laid off and their own duties expanded, they say they wish their paychecks better reflected the multibillion-dollar profits that Bank of America and Wells Fargo posted last year.

“You’d like to believe that when the tide comes in all the boats get raised,” said one Bank of America employee who works in the division that services delinquent mortgages. He said bonuses there are about two weeks’ pay. “But the tide’s come in and it seems like the only boats getting raised are the big ones.”

He said in past years, when he worked in a different division, he and his colleagues often used bonuses to buy big-ticket items such as a new TV or laptop. Now, he said he’s more likely to use the money to pay down debt or boost savings.

“I’m going to be as thrifty as I can,” he said.

Wide range of bonuses

Bank of America employs about 15,000 in its headquarters city. Wells Fargo employs about 20,500 in Charlotte, its East Coast regional hub.

The changing mix of bank employees in Charlotte has influenced the bonus landscape.

Bank of America has moved hundreds of investment bankers and traders – jobs that often draw six-figure bonuses –from Charlotte to New York. Wells Fargo, by contrast, has steadily grown its securities desk in Charlotte over the past three years and now employs about 2,000 in the city.

Wells Fargo bankers will start to learn about their bonuses this week and get paid later in the spring. Two people familiar with the situation said investment bankers who help corporations make deals and raise capital are especially optimistic. Those bankers, particularly in the upper ranks, are likely to “kill it this year,” one of the people said.

Industrywide, bonuses for investment bankers are expected to be up as much as 10 to 15 percent, according to a report from compensation consultant Johnson Associates.

At the associate level – which typically refers to bankers arriving with an MBA – beginning salaries are in the $100,000 to $120,000 range, and bonuses tend to be about one times salary after the first year, said Phil Colaco, an investment banker with Deloitte Corporate Finance in Charlotte. Bonus details are still coming out, but early signs show that payouts are up this year over last year, he said.

At the managing director level, a typical investment banker bonus range is between $400,000 and $600,000, according to compensation consulting firm Johnson Associates.

For commercial bankers, a bonus range can be between $300,000 and $400,000 for managing director-level positions, Johnson Associates found. Commercial and retail banker bonuses are expected to be up 5 percent or less as low interest rates and tepid loan demand have made revenue growth hard to come by. Staff positions, such as back-office personnel, are expected to have bonus levels remain flat.

In general, bankers this year are “pretty OK with their bonuses,” Alan Johnson, managing director of Johnson Associates, said of the financial industry. “They’re not happy, not ecstatic. But they’re OK.”

Across the board, the general mood on bonuses in Charlotte appears more tempered than in the early 2000s. Traditionally, bonus season has been a boon to car dealerships, jewelry shops and other high-end retail. But these days, bankers say, they’re more likely to put money in savings or pay down debt than go for a big-ticket item with memories of the 2009 financial crisis fresh in their minds.

‘Back to reality’

While bonuses are up, they’re nowhere close to where they were at their peak in 2007, Johnson said. Though anti-banker sentiment has waned from the Occupy Wall Street days of 2011, bonuses remain politically unpopular.

So, more than five years after the financial crisis, bankers have become more accustomed to the new political and economic realities that influence their bonuses, Johnson said.

“People’s expectations have come back to reality,” he said.

Bank of America typically lets employees know about bonuses starting in late January, and they’re paid in the middle of February. The bank declined to disclose whether bonuses had risen overall.

“Bank of America uses a pay-for-performance philosophy where each employee’s compensation is based on several factors, including their individual performance, the scope of their role, and company and line of business performance,” spokeswoman Ferris Morrison said in a statement.

Overall compensation at the Charlotte bank fell about 3 percent in 2013, according to the bank’s most recent financial report. Employee headcount worldwide fell more than 9 percent in the second full year of Bank of America’s companywide cost-cutting program known as Project New BAC.

The bank hasn’t broken out the latest job cuts by location, but they have fueled some resentment among workers who say they’re doing more work than ever but not paid accordingly.

“The workload has increased, the regulatory scrutiny has increased, and our compensation has not,” said one Bank of America risk manager. She said her bonus had been in the $20,000 range but fell this year.

Wells Fargo spokesman Josh Dunn declined to comment specifically about bonus totals. He said the bank views compensation as part of a total package to support its staff, including benefits and career development.

“Wells Fargo pays for performance that is aligned with customer and shareholder objectives,” he said in a statement. “We promote a culture of risk management that avoids unnecessary or excessive risk taking, attracts and retains highly qualified leaders with competitive pay, and aligns our leaders’ interests with those of stockholders.”

Impact to economy

Mecklenburg County’s finance and insurance sector paid more than $2.2 billion in wages in the first quarter of 2013, the time when most bonuses land in bank accounts. The effect is significant; wages were only half that total in the second quarter.

That year’s wage pool was up 12 percent from 2012. It was the highest quarter of finance wages since 2007.

Should the trend continue, 2014 could mark the largest finance wage pool in Mecklenburg County’s history. Though both Bank of America and Wells Fargo have cut back their workforces in some lines of business, expanding regional banks and big-bank growth in other divisions have helped the county’s finance sector job totals bounce back almost to 2007 levels.

“Business bonuses have improved and have augmented the incomes of households mainly at the upper end of the income scale,” N.C. State University professor Michael Walden said in an email. He said that has helped wages for high-income people grow while incomes in lower-paying jobs stay stagnant.

“In short, much of our economic improvement is being driven by gains for upper income households,” Walden said.

That has translated into growth rates in spending on luxury goods that far outstrips the overall economy. A recent report from Bain & Co. consultants estimated that U.S. luxury sales grew 4 percent last year, faster than anywhere in the world and far faster than GDP.

Ernest Perry, owner of Perry’s Fine, Antique and Estate Jewelry in SouthPark, said he’s expecting small increases in sales this season over years past, but notes that, “It’s not like the good old days.”

He’s had less traffic in his store in recent years and fewer purchases – but the ones he gets tend to be high-dollar items.

“The higher-end business is the place to be right now,” he said. Staff writer Rick Rothacker contributed.

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