Wall Street Begins Annual Bonus Bonanza

Nov. 22, 2006 — -- Andy Williams said it the best: It's the most wonderful time of the year. And nowhere is that more true than on Wall Street, where thousands of workers have entered the annual salary bonus season, expecting more green than red in their holiday trimmings this year.

By almost any measure, the financial successes of 2006 made it a spectacular year on Wall Street, and workers are seeing that reflected in massive year-end bonuses.

"We are seeing record highs across the board," said Eric Moskowitz, a director of Options Group, a strategic consulting firm focused on the financial services industry.

The Dow Jones industrial average hit record levels, and a rash of corporate buyouts have contributed record profits for the almost everyone on Wall Street. The five biggest brokerage and investment firms alone brought in $60 to $80 billion in total revenue.

"There is a lot of good business momentum out there. And some of the firms, some of the investments that they made five years ago are starting to pay off," Andy Roost, vice president of Johnson Associates Inc, a company that monitors compensation trends. "If the results for the overall firm are doing good, then those who are handling the transactions are going to benefit."

That means massive bucks for many bankers this year.

$2 Million to $3 Million for Top Tier

Investment bankers, who advise corporations on their financial dealings, are as a group set to do the cash-huge bonuses this year. Johnson Associates estimates that 1,000 top-tier investment bankers will earn in the neighborhood of $2 million to $3 million in bonuses. That's more than 10 times their $100,000 to $250,000 salaries.

The CEOs of premier investment banks will pull in the biggest money -- about $40 million plus bonuses to the premier companies, mostly in the form of stock.

And even those lower on the ladder will benefit from the boom. Entry-level analysts fresh out of college can expect to earn $130,000 to $150,000.

"Yes, they do make a ton of money -- but they make as much as the firm makes, and it's a percentage, said Eric Moskowitz. "If the revenue gets cut in half than their bonus will be cut in half and fire a lot of people. That being said, they do quite well."

"It's a certain skill set -- a certain mentality. They bring in a lot of value for the company for their shareholders," said Roost.

Also, Uncle Sam loves his cut of those bonus checks. Up to 40 percent of the $21.5 billion in bonus money last year got snapped up in taxes.

It can be a minor boon for cities like New York, where many investment bankers work. The state estimates that New York is set to receive $500 million in tax dollars from all that bonus money.

"The No. 1 reason why cities like New York will have huge surpluses this year is because of Wall Street bonuses," said Moskowitz. "It will be the third good year in a row for New York City coffers."

Although 2006 has been a great year, the fortunes of those who work on Wall Street can easily change.

"It's a pretty vicious place. When times are good they're very good -- when times are bad they're very bad," said Moskowitz. "It's been three years of good times, but next year or the year after may not be as good -- the end of the rainbow."

And if Andy Williams was still around, he would agree that with all that money there will be lots of parties for hosting and marshmallows for roasting.