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Bankers' wages - the biggest chunk of payroll for Mecklenburg's workers and a potent driver of the local economy - took a record hit this year.
Financial wages dropped by a third, or $650 million, in the first quarter, compared to the same January-to-March period in 2008, recent government data show. That's the result of slashed bonuses and lost financial-services jobs as the financial crisis battered Charlotte's megabanks.
It's not yet clear what the coming bonus cycle will look like in Charlotte. Bank of America and Wells Fargo, which make up a majority of the financial-services sector's work force, face another difficult year and tighter scrutiny of their pay. Some experts expect a slight rebound in payouts for bankers as bank earnings and shares improve, though they don't expect bonuses to reach the sky-high levels of years past.
"A good bonus season for Wells would do a lot for the community," said Jim Walsh, a former Wachovia investment banker who now leads the Charlotte office of investment bank Jefferies & Co. "If they don't have a decent bonus season, that would be a tough thing for the Charlotte marketplace."
Finance and insurance sector wages make up 20 percent of Mecklenburg's private-sector wages, though the sector accounts for 10 percent of jobs, according to data from the N.C. Employment Security Commission. That means what happens at the banks can have a major impact on the rest of Charlotte. Every dollar of lost bank payroll, an N.C. economist calculates, translates to $2 in losses across the regional economy.
Lions Jewelers, a high-end store in Phillips Place that typically sees an influx of shoppers each March after bonuses are paid, has felt the pinch this year, manager Tonda Rifkin said.
"You are hearing people say it's not in the budget," she said. "Let's face it - we're selling a luxury item. It's not food for your table or a mortgage payment."
Booming in the '90s
Banking salaries and bonuses have long been tied to Charlotte-area residents' wealth. Beginning in the 1990s, as the city's banks became national powerhouses, the financial activities sector steadily added thousands of jobs a year, paving the way for a larger payroll. Bank wages grew further as the banks ramped up profitability.
The payroll data for much of the last decade spiked in the first quarter each year, largely because that's when bonuses arrived at Bank of America and Wachovia, which was snapped up by Wells Fargo as the financial crisis seized Charlotte a year ago this week. Doled out to top earners and lower-level workers alike in the beginning of the year for the previous year's work, bonuses have helped fuel larger-than-ever consumer spending and boost median household income above the U.S. average.
The first quarter of 2007 followed a year of record profits for the banks, meaning bigger payouts for executives, investment bankers and others. For 2006, Bank of America chief executive Ken Lewis received a bonus of $6.5million, while then-Wachovia CEO Ken Thompson received $5.1million.
"Bonuses in the financial-services sector were very, very important," said Mike Walden, an economics professor at N.C. State University. "Those bonuses did extend down to even middle management. When we were in this go-go real-estate and financial-services environment and one bank wanted to top another ... the way to motivate your dealmakers was to hold out the carrot of bonuses."
Bonuses began to fall as the deteriorating economy ate into banks' profits in 2007 and 2008.
Wachovia's top executives didn't receive bonuses in those years. Investment bankers and others received sharply reduced bonuses for 2008, with the bank's payouts averaging about 20 percent of incentive targets.
At Bank of America, top executives received bonuses for 2007 but not 2008. For other employees, the bank said it reduced incentive payments for 2008 by an average of more than 60 percent, with higher-paid executives receiving steeper cuts.
Layoffs also played a part in the shriveling finance wages. In the first quarter, the Charlotte region lost 3,700 jobs, largely because of the financial crisis and merger-related cuts at Wells Fargo and Bank of America.
The $650million drop in first-quarter finance wages was the county's biggest such drop on record, nearly equaling the total payout for finance in the first quarter of 1999. The hit was also more dramatic than the decline in overall wages for Mecklenburg's private-sector workers, which were down 15 percent.
The finance drop this year set the county back to payout levels in 2003 and 2004. That's still far higher than earlier this decade. And for 2008 as a whole, financial-services sector wages were down just 8 percent, paying out $5.2billion, while overall wages grew slightly.
Still, finance wages have fallen faster in Charlotte than other cities such as New York and Atlanta, said Chris Cunningham, a statistician in the U.S. Bureau of Labor Statistics' Atlanta office. The average annual pay per employee in Mecklenburg was about $99,954, down from $104,593 in 2007.
That's probably because Charlotte's finance-sector work force is so closely tied to banks, he said. "There are a couple of big players in Charlotte, and when they fall on hard times, it's going to affect the data a little more," he said.
Shock waves
Consumer-driven businesses have been rocked as bank employees' and shareholders' wealth took a beating.
Mecklenburg's sales tax collections, a measure of the retail sector's health, were $24.8million in July, down 25 percent from July 2008. The first quarter of this year - when most bonuses roll in - sales tax collections were about $76million, down 22 percent from the first quarter of 2008.
At Lions Jewelers, the sales team counted on "the certain times of year" that bankers would come in to spend their bonus money, Rifkin said. Now, people are saying they can't afford to shop there because of dwindling bonuses, she said.
The store closed its Lake Norman and Ballantyne-area locations when their leases expired last year and early this year, moving their staffs to Phillips Place, as a result of the down economy, Rifkin said. And the sales staff is working harder than ever to reach out to customers and talk up the store's more affordable gifts, such as $25 sterling silver charms.
"There are still people coming in and buying," she said. "But people are looking more and being more decisive."
Matthews interior designer Celeste Lupo-Hack didn't work at all from October through March as bank employees, fearing for their jobs, reined in spending.
"I really was thinking, what can I go do, and what else can I be in this world?" she said.
She survived on her savings until last spring, when the first new orders began trickling in. While she's still making up for lost money, her future this September is far more certain than last, she said.
"I feel very blessed I'm working."
As the stock market plummeted last year, colleges, universities and charities said their endowments declined. And as the personal wealth of potential donors - including bankers who rely on annual bonuses - declined, it's become harder for schools to raise new money.
Some say it's not as bad as they feared, though.
Davidson College's endowment was down about 23 percent over the year ending June 30, said Karen Goldstein, vice president for business and finance.
College officials assumed giving would fall as well, but more than 60 percent of alumni donated last fiscal year, the same as the last seven years, she said. They gave slightly more than the college originally budgeted, before the financial crisis hit.
"We have no idea about what's going to happen next year," Goldstein said. "But if that was the worst year ... it's not so bad."
Tight controls
Experts predict a slow recovery for Charlotte bank wages. Bonuses are typically based on banks' earnings, workers' performance and the performance of individual bank units.
Under Treasury rules for recipients of aid through the government's Troubled Asset Relief Program, bonuses for Wells Fargo's top 25 executives are limited to one-third of their total compensation. The Treasury also encourages TARP recipients to pay salary in the form of stock that must be held for a long time. Wells has already announced plans to pay part of top executives' salaries in stock.
Bank of America faces tighter restrictions on compensation because it is considered to have received "exceptional assistance" from the government. Under terms announced in January, senior Bank of America executives would have their bonuses for 2009 reduced by 40 percent from 2007 levels.
Economists expect hiring to remain tight at least through the end of the year, and fewer workers in the financial sector could mean deflated wages for months to come.
One factor that could boost the coming bonus season compared to last year's is the fact that many capital markets-related businesses - such as bond underwriting and securities trading - have had strong years. Wachovia has also stabilized after its Wells Fargo merger.
In a report in August, New York-based compensation consultants Johnson Associates Inc. projected incentive compensation for major investment and commercial banking firms will "significantly increase year-over-year," while the firm expected incentive compensation in the asset management business will decrease.
"The pace of economic recovery, industry activity, repayment of government funds, and evolving legislation will be key bonus drivers for 2009," the report said. Staff writer Stella M. Hopkins contributed.
