Top Firms Face Big Bonus Dilemma

2007 looks set for the most interesting bonus round for some while. After many banks enjoyed record first-half earnings, the third-quarter saw huge asset write-downs, profit falls and job loss announcements. But, although many firms are still in the process of 'right-sizing', the general view is that things will pick up again early next year - making it essential that good performing and valuable staff are incentivised to stay on board. And then there's the Goldman Sachs 'problem'.

Now, in the light of the recent turmoil in the markets, many feel that year-end will see bonus pots down between 15 - 25% on last year, which was itself a record year. Having said this, Goldman is having another storming year and, no matter the size of bonuses paid elsewhere, there's bound to be a lot of 'bonus-envy' around. Last year Goldman allocated $16.4bn for compensation and benefits and a massive $16.9bn has been allocated from earnings from the first 9 months of the firm's current fiscal year.

But, despite all the doom and gloom about bonuses this year, things don't appear to be that bad. Many firms do appreciate that investment banking is a cyclical business - and although you have to take the pain in bad years, you also have to keep decent staff around to make hay when the sun shines. We took a look at the eight big firms who have already posted their third-quarter profits, and you might be a little surprised how their compensation and benefits expenses for the first 9 months of their current fiscal years compared to 2006 as a whole. It could be worse.

Bank of America

1st January, 2006 to 31st December, 2006 - $18.2bn

1st January, 2007 to 30th September, 2007 - $13.9bn

Bear Stearns

1st December, 2005 to 30th November, 2006 - $4.3bn

1st December, 2006 to 31st August, 2007 - $3.1bn

Citi

1st January, 2006 to 31st December, 2006 - $30.1bn

1st January, 2007 to 30th September, 2007 - $25.3bn

Goldman Sachs

1st December, 2005 to 30th November, 2006 - $16.4bn

1st December, 2006 to 31st August, 2007 - $16.9bn

JPMorgan (investment bank only)

1st January, 2006 to 31st December, 2006 - $6.3bn

1st January, 2007 to 30th September, 2007 - $6.4bn

Lehman Brothers

1st December, 2005 to 30th November, 2006 - $8.7bn

1st December, 2006 to 31st September, 2007 - $7.3bn

Merrill Lynch

1st January, 2006 to 31st December, 2006 - $17.0bn

1st January, 2007 to 30th September, 2007 - $10.6bn

(Merrill has acknowledged that it will have to allocate more for comp and ben costs in the final quarter in order to remain competitive on pay).

Morgan Stanley

1st December, 2005 to 30th November, 2006 - $14.3bn

1st December, 2006 to 31st August, 2007 - $13.3bn

Now, when comparing 2007 to date figures with 2006, you need to bear in mind that many firms significantly increased headcount in the first half of 2007. To counter this, however, many firms have been axing / will axe staff before the year-end.

To sum up, then, if you're still in a job at year-end, the chances are you'll still get a fairly decent wad. And remember when you compare what you get this time with last year-end that 2006 was a RECORD year for bonuses.

The 2007 Bonus Anticipation Poll