How Much Is a Wall Street Bonus Really Worth?

Bloomberg Audio Studios, podcasts, radio news. It's bonus season on Wall Street, and it's expected to be a good year. Executives at Morgan Stanley, Bank of America and JP Morgan are reportedly planning to give out some of the biggest bonus increases since the pandemic. But these bonuses aren't typically paid fully in cash.

You're usually given a dollar figure, but what you're actually given is shares which fall and rise in life.

Laura Noonan covers global finance for Bloomberg.

So if you're getting twenty thousand shares and the share price is two dollars today, they will call that a forty thousand dollars bonus.

But you don't get all forty thousand dollars worth of stock today. Bonuses usually pay out over several years, and by the time you're forty thousand dollars worth of stock fully vests, it might not be worth forty thousand dollars anymore. So Laura and her colleagues developed a bonus calculator. They looked at data from a dozen of the world's biggest banks and dug into how much these bonuses were really worth once they were paid out.

If you were, say, weighing an offer from two banks back in twenty fifteen, and you want to see how your bonus would have fared if you picked the other bank. You can just check. So we did it. Assuming you're getting a one hundred thousand dollar bonus.

What they found is a one hundred thousand dollars bonus does not always mean the same thing. It can vary widely depending on what bank you work for, what year you get your shares, and what year you cash them out.

One of the cases we looked at was in twenty eighteen, adoutsche Bank trader awarded a one hundred thousand dollars If they cashed out everything in each year as they could have, that would have gone down to forty six thousand, six hundred twenty eight, so they lost half, whereas a JP Morgan person given the same amount would have got about one hundred and thirteen thousand.

This is the big take from Bloomberg News. I'm Sarah Holder. Today on the show how Much is a Big Bank Bonus Actually Works? Laura Noonan shares what she found about the true value of bonuses promised by some of the world's biggest banks. Let's imagine you've just been offered a job on Wall Street. Congratulations. Chances are you're being offered a hefty salary plus an even heftier bonus.

The bonus can be a very big proportion, so you could be talking three or four times your salary in your bonus. Depending on how well you do. As you get more senior, the bonus can get even bigger relative to your actual salary. It wouldn't be unusual to earn most of your money within bonuses.

That bonus offer. It's not set in stone. You might actually take home more money or less depending on how well your company's stock performs. Laura told me that's actually the point, and it didn't always work like this.

Before the financial crisis, a lot of that bonus was paid in actual cash, so on the bonus day you get your check, it just got into your pacelip. Since the crisis, there was a lot of talk about the fact that people made very big bonuses on things that then went disastrously wrong years later and actually lost a lot of money, But the bankers had already walked away with their millions of bonuses. So in an effort to better align how bankers are paid with how things ultimately

So you might be promised a certain number of shares, but you can't sell those shares at once they vest over a year or two or three.

The other thing that the deferrals did was it makes you stay well. In theory, it makes you stay in the bank because you only get paid if you stick around.

So then let's fast forward three to four years I've been and during my time at the big bank, how do I figure out how much money I'm actually going to get paid?

So the total amount, we're going to assume that you sell everything as soon as you can. So maybe when you got the stock it was worth ten dollars. When you sold the first batch, it was worth twelve, the second batch it was worth nine, the final batch it was worth eight. Basically, all of those together will tell you the average share price that you sold at, and you can add up all the money and see how much you got.

Laura looked at the average value of a one hundred thousand dollars bonus across a dozen different banks between twenty and eight and twenty twenty three. She found that if you worked at Morgan Stanley or JP Morgan during that time span, your annual one hundred thousand dollars bonus might wind up making you one hundred and twenty five thousand dollars on average, but at Deutsche Bank you'd walk away

But if you look at individual years, I don't think anybody would have thought that the most valuable bonus ever granted was by Bank of America in twenty twelve. That to me was surprising. It's just a confluence of how share price just did over the period. So in that case Bank of America's twenty twelve award, for every one hundred thousand, you would have got just over two hundred and seventy thousand dollars by the time you actually catch

Trying to use these kinds of past insights to maximize your future bonus can be a challenge, but there are some general trends Laura found looking at the data with hindsight.

You know, you don't want to work for a European bank generally unless it's UBS. American banks were generally much more stable. They didn't have the same kind of highs and loads. European bank just went through and mild swings. I would take UBS out of that because UBS has more of the characteristics of a US bank, and also it's outside the EU, it's a big wealth manager. It's the only one that actually was not bottom half in terms of average bonus currency. But the other European banks

But over the last few years, those differences between banks have gotten less significant. Since twenty nineteen, the gap between bonus values at the best performing banks and the worst has narrowed. And there's a big asterisk here. The analysis doesn't account for another variable that can change how much of a bonus you actually get to take home taxes.

So this is basically purely looking at how much those shares are worth, not how much the shares are worth to you.

But what can all this teach people in the banking world about what these bonuses might end up worth to them and how much they can bank on their bonus payouts. That's coming up. Bloomberg's Laura Nonan told me the idea behind a bonus was to be just that, a bonus gravy on top of your salary. But bonuses have become such a large proportion of Wall Street bankers compensation packages that many people plan major life decisions based on the figures they're promised.

Originally, I mean, bonuses were meant to be exceptional for the very high performers. It was a way to incentivize them because they feel like, I'm making my bank all this money. I want to be paid something special on top of my salary. Now, bonuses did become almost an entitlement for banks, Like or people expected them every year, and they expected a minimum level of bonus every year.

It's like being at a concert. The audience is conditioned to expect an encore, so everyone stays waiting for their favorite song to play, even after the band has left the stage. But what if the audience makes it to the end, claps their hearts out, but the band just doesn't come back to play the hit. That's kind of like a Wall Street bonus in a bad year.

And that has been problematic, Like some people rely on bonuses to pay their school fees because they've become so recurring that people don't treat them as this exceptional nice to have. They just build it into their day to day living expenditure.

But as you said, they're not that stable.

Necessarily, they're not that stable, and they are head up in chairs. And the other thing about it is like credit we speneut. If you have most of your wealth in shares of the bank you work in and the bank collapses, you lose both your job and your savings at the same time. I mean, people have a very

For employers looking to retain talent, Bonuses aren't always such a reliable strategy either. Sure, people waiting for their payout might stick around longer than they would have otherwise, but Laura says it's common to negotiate with a new employer to compensate you if you leave a bank before your bonus fully vests. What advice would you give someone looking to maximize their bonus earnings based on what you've seen in this calculator? Is that something you can game out.

If you have a high risk appetite and you're looking to maximize, then you probably want to go for something with a pretty low share price if you believe it will appreciate. You know, I'd be thinking more a City or a Wells Fargo than a Jping Morgan. If you want to have a high bonus value over time, something that's going to almost always pay you more than you expect, then you want Jping Morgan. You want a Morgan Stanley because those banks have almost always you've ended up getting

Of course, if you don't work in banking. You might be listening to this and thinking I'd be happy with any of these bonus amounts. But there are some takeaways here for anyone to consider. Be careful what you expect when a company makes you promises in stock. Think about selling your shares right when they vest, so your employment and financial eggs aren't all in one basket. And while some companies are more stable than others, it's not always a bad idea to work for a company that has