With the US economy in the throes of a historic meltdown, financial workers everywhere fear layoffs. But even those who keep their jobs may face a far different future than they had imagined — one without the big payouts that have long made Wall Street a beacon for the ambitious and the acquisitive.
Those finance industry workers still standing after the bruising banking collapses of the past few months had to contend with a major slash in bonus pay — with many losing as much as one-third of their total compensation.
Then the administration of US President Barack Obama imposed a pay cap of US$500,000 on certain senior executives whose companies received substantial bailout money.
Now, analysts anticipate pay will sink even further, and some question whether the shift could permanently downsize the high-flying culture of Wall Street.
“It’s going to drop again in 2009, so it’s a huge change,” compensation consultant Alan Johnson said of the falling bonus payouts.
Johnson noted that pay has often dropped as part of a cyclical downturn and then rebounded after a few years. But he said the new federal pay caps have changed the equation and have many Wall Street workers concerned that their incentive pay could disappear altogether, cutting their compensation to one-third of what it was.
In the neighborhood surrounding the New York Stock Exchange, many finance industry employees say they are more worried about keeping their jobs than they are about their paychecks dwindling. Some believe the loss in compensation goes with the territory.
“You eat what you kill. It’s a performance-based industry,” said broker Drew Alexander, who has seen his pay drop since October and reports that some friends have lost upwards of 60 percent of their income.
Even many of those performing well are being forced to cut back on some expenses. Most finance sector employees have come to depend on bonuses and incentives to cover about two-thirds of their total income — but last year that bonus pay was sliced by about 45 percent, cutting total compensation by about one-third, Johnson said.
That means, Johnson said, that workers who recently got their MBAs and once would have expected more than US$150,000 in yearly pay likely got about US$105,000. Vice presidents, who in flush years have made US$300,000 to US$500,000, saw a drop of US$90,000 to US$150,000.
Even secretaries, who including a small bonus often make about US$50,000 a year, have seen a drop.
At the big investment firms, where historically hundreds of employees have made millions, and thousands have made US$300,000 to US$500,000, workers are struggling to come to grips with a world gone suddenly awry.
“Morale is terrible right now,” Johnson said. “People are getting laid off. Pay is down. You’re working really hard.”
A number of firms have seen a jump in the employee hours spent at the company gym, as people try to cope with declining opportunity and rising stress, he said.
Analysts believe the federal pay caps imposed on some of the highest-level executives, combined with public anger surrounding Wall Street bonuses, may very well trickle down to reduce the pay of employees at all levels of finance firms.
“It will have a deflationary impact on the organizations,” said Pearl Meyer, executive compensation consultant with Steven Hall Partners. “But I don’t know how permanent that is.”