Peter Stingi is the paymaster at Merrill Lynch & Company. He’s the “global compensation management” chief. Let’s touch base with Mr. Stingi to see what his predictions are for this Wall Street bonus season. Will you be stingy, Mr. Stingi?
“Generally, we choose not to comment on compensation-type related material,” Mr. Stingi said.
No bonus prognosis?
“None at all, no comment.”
Mr. Stingi (pronounced sting-ee , not stinj-ee , actually, though some underpaid Merrill executives who notice his name on compensation memos tend to mispronounce it) was in his office at 7 A.M., hard at work divvying up the spoils of yet another huge year on Wall Street. At Merrill, this is the time of year when bonuses are determined, when the bankers and traders who have been toiling through four seasons on behalf of mammon are allocated their portion of it. They get their number (that’s the vulgate) in late January, their check a few days after that.
But at many of Merrill’s big bulge bracket competitors, the third week of December is bonus time. Starting Dec. 13, executives and peons at Morgan Stanley Dean Witter, Goldman Sachs, J.P. Morgan, Lazard Frères and Lehman Brothers will file one by one into the office of their boss (or of their designated compensation manager) to be given the six- or seven- or even eight-figure number that they live for and live on. That is, they will find out what their bonus is.
It is the most hallowed ritual on Wall Street, occurring conveniently around the old pagan festival week of the winter solstice, the peak season of conspicuous consumption and family dysfunction. And in the weeks-months!-leading up to it, the anticipation mounts. As the elaborate system of determining compensation, a tortuous process often stretching back into summer, finally winds down, the deal makers and traders get distracted by that looming date with their own Mr. Stingi.
This year, according to headhunters, bonuses are likely to go up. Surprise, surprise. Unlike last year, when huge trading losses and loan defaults in Russia and Asia devastated investment banks’ earnings, nearly everyone on the Street has had a splendid 1999. As a result, headhunters say, investment bankers should see an increase in their bonuses this year of 10 to 20 percent, if not more. For example, bankers five years out of business school are expected to earn $850,000 or so, whereas last year bankers five years out made around $750,000, headhunters said.
“Usually, there’s this game of psychological warfare,” said one banker at a major firm. “I’ve gotten it every year. They just beat down your expectations. Some do it well, some don’t. It’s my least favorite part of investment banking. It’s all October and November and then nothing gets done in December. But they’ve done nothing this year to beat them down. So everyone here thinks they’re going to get paid through the moon.”
“It’s gonna be a big year for two reasons,” said one headhunter. “Most firms are having a record year. And a lot of firms are having trouble retaining their people.”
Ah, yes, the brain drain. All the kids are getting crazy, shunning the firm for dot-com dreams or the venture capital firms that finance them. At the top business schools, students are no longer turning up for Morgan Stanley presentations. They’re not even staying in school. They’re off to Silicon Valley for a life of sandals and stock options. Meanwhile, the drones at the bank have to contend at cocktail parties with the arrogance of the buy-siders, the hedge fund babies with their open-collar shirts and brown shoes. The lure of real bull market riches, as opposed to a mere safe million, can be overwhelming. “The right price to do a job you don’t really like is much higher,” said one trader at a major firm. “Because the alternative is to go to the West Coast and do something really fun and kind of cool and maybe even a little bit socially productive.”
“It’s very simple,” said a managing director at one of the big firms. “The firm pays you what they think they need to in order to keep you. That’s if they want to keep you. Meanwhile, you know what you’re worth and if they don’t match that, you’re gone.”
The two lines most commonly heard in comp sessions are, “We wish we could’ve paid you more,” and “Don’t tell anyone else, but you’re the big winner this year.” (“The guys who walk out smiling are the ones who bought that line,” said one banker.)
At one firm, employees have a tactic for finding out where they really stand: Everyone in one department writes down his or her number on a scrap of paper and throws it into a hat. A designated slave crunches the numbers and provides the participants with an average, against which they can measure their self-worth. “It’s a check on whether management is lying to you,” said a trader.
“Everyone always thinks they should have been paid more,” said one banker.
That was certainly the case last year, when the upheaval in the global markets late in the year shattered a lot of hopes. “I got half as much as I should have,” said one trader. “I thought I was being very conservative. I went into the meeting knowing that I’d lost a stack of money that year. The guy said, ‘O.K., traders who lost money got zero. You got X.’ X was a number nominally greater than zero.”
Enter the headhunters. Actually, the headhunters insert themselves into the process earlier in the fall, calling around the Street, gathering and dispensing information, seeking out the seeds of dissatisfaction. They compile estimates for how much people at a certain level will make and they share those estimates with their friends and clients. “You develop expectations based on calls from headhunters, who are out to foment dissent,” one banker said.
Once the bonuses are paid, the phones start ringing.
“We will feed off of the banks that don’t pay well,” a headhunter said. “We’ll call and say, ‘Hey, heard you guys got shitty bonuses.’”
And the bankers will fess up. The headhunters are their confessors; they only talk to their peers if they did well. And when they do well, a lot of people don’t even discuss the number with their families. A senior vice president at a major firm, who expects to make around $1 million, said, “I think my parents would be very proud if I told them, but I just don’t. My mom will ask, and I’ll just say, ‘I did fine.’ She thinks I make a third of what I make, and she thinks that’s huge. At one point, she was trying to get me to buy a house in Florida for her and my dad to go hang out in. It was in some retirement community in Florida. I’m like, ‘Listen, I barely make it out of town for the weekend.’”
This year, he’s got other ideas: “I’m gonna buy a sports car,” he said. “I could spend 100 grand on a sports car and not worry too much, and that’s kind of nice.”
“A lot of people are talking Ferrari Maranello,” said one former banker who is now investing in Internet startups.
They’re talking Ferrari now, but somehow, once you get the number, it doesn’t take long for the euphoria to give way to worry. You start thinking Audi instead, and then … where’s my next deal?
“For a second, you’re like, Jesus Christ, that’s a lot of money,” said a $1 million-a-year (he hopes) vice president. “Then, you think, shit, the tax man gets half. Then it hits you: now I have to start all over again. It’s an anticlimax.”
“You’re facing another year of starting at zero and of having to prove yourself,” a managing director said. “The wear and tear in this business is massive. You have to make a number. Waking up every morning and saying, ‘I don’t have the number and I don’t know how to get there, it’s a nightmare.”
By Christmas, the bitterness is back.
“In the grand scheme of things, we’re obviously dramatically overpaid,” said one senior vice president. “We’re just guys who work for some public company. But the flip side is, if others are getting it, you should, too. We earn it more so than a bunch of Internet schmucks who come up with some stupid idea. I think those people are all full of shit.”
“I’d like to do this until I’m managing director,” he went on. “Then, I don’t know, open a flower shop, like Christian Slater in some stupid movie I watched on an airplane. He was a hitter investment banker who opens a flower shop and sends flowers to some chick who totally falls for him. That’s gonna be me.”