Top Wall Street banks paid out $142bn in pay and benefits last year

Wall Street’s leading banks increased pay by nearly 15 per cent last year as they fought a war for talent that is expected to drag on as long as dealmaking remains buoyant.

JPMorgan Chase, Citigroup, Goldman Sachs, Morgan Stanley and Bank of America disclosed in recent days that they had handed out $142bn in pay and benefits in 2021, up from $124bn in 2020, in an effort to keep their top bankers satisfied and cope with a global rise in wage inflation.

Pay experts warned that there was a risk that the upward pressure on remuneration would continue as bankers consider their career options following a gruelling year in which banks reaped record profits from a boom in mergers and acquisitions, initial public offerings and debt deals.

“The reaction [from bankers] usually would be very positive after this kind of pay year — we’ve told our clients to expect so-so to OK,” said Alan Johnson, managing director of Johnson Associates, a pay consultancy in New York. “The view is, I got paid a ton of money for ’21 but, boy, I earned it and I’m exhausted.”

The higher pay comes against a backdrop of rising costs for many banks as they invest in new technology, modernise their existing IT systems and compete with fintech rivals.

Concerns around costs and pay weighed on bank stocks in recent days following fourth-quarter earnings reports, a sign that investors are concerned about rising remuneration, according to Gerard Cassidy, banking analyst at RBC Capital Markets, who estimates that Wall Street banks paid out record figures for 2021.

Jason Goldberg, bank analyst at Barclays, said: “It’s just a competitive landscape for talent. You can’t automate an M&A transaction.”

So far, the pay raises are largely being covered by increases in revenues. At Goldman, bankers received 30 cents of every dollar the bank earned in revenue in 2021, net of provisions made during the year, 6 per cent lower than in 2020. At Morgan Stanley, bankers pocketed 41 cents of every dollar in revenue, down 4.7 per cent year on year.

At JPMorgan’s corporate and investment bank, however, which houses its investment bank and trading arm, the bank paid employees a greater share of its revenues, with 25 cents of every dollar in revenue going to remuneration, up 4 per cent.

“We will be competitive on pay,” Jamie Dimon, JPMorgan’s chief executive, said last week. “And if that squeezes margins a little bit for shareholders, so be it.”

Goldman, with a business that skews more towards higher paying businesses like investment banking and stock and bond trading, lifted pay per employee the most last year. The average worker at the company took home just over $400,000 in 2021, up 22.8 per cent from 2020, according to Financial Times calculations.

In an interview with the FT this week, David Solomon, Goldman’s chief executive, said the pressures on pay were two-fold. Bankers were reaping rewards after a good year, he said, and there was “wage inflation everywhere”.

“The pressure everywhere comes from the enormous amount of monetary and fiscal stimulus that’s changed dynamics. It comes from the fact that we’re really operating with nearly full employment,” Solomon said.

“And there’s a portion of the workforce over 55 that decided, because of the pandemic, they were going to sit on the sidelines. So labour’s tight.”

At most of the big banks, the remuneration increases last year came mainly from bonuses rather than salary increases, particularly in investment banking, which had a stellar 2021.

Paying more in bonuses and less in base salary gives banks the flexibility to pare back packages if future earnings fall, with most analysts forecasting a slowdown in bonus-heavy areas like investment banking in 2021.

The bumper pay packets in investment banking come after a gruelling year for an industry already known for its long hours.

Given that the pace of dealmaking is hard to predict, investment banks are typically staffed conservatively. In years like 2021, when dealmaking hit the highest levels since records began more than four decades ago, this can lead to bankers being even more stretched than usual.

“Everybody was really checked out and exhausted,” said one investment banker when asked about the mood at the end of 2021.

In a tight labour market where competition for talent is fierce, banks are hoping that higher bonuses will help them hold on to key staff, according to Jan Bellens, global banking and capital markets sector leader at EY.

“The key way to actually hold on to the talent, particularly in the investment banking and capital market side,” Bellens said, “is actually to drive those bonuses [higher].” 

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