Wall Street workers from trading floors to corner offices are bracing for a lacklustre bonus season.
JPMorgan Chase & Co. announced on Wednesday that it is cutting the compensation of its chief executive officer, Jamie Dimon, by half to reflect his ultimate responsibility for a trading blunder that cost the bank billions last year.
For the industry's rank-and-file traders, the picture isn't much brighter.
Big banks are reducing the proportion of their revenue they pay out in compensation and finding new ways to defer bonuses in a challenging business environment.
Goldman Sachs Group Inc., which reported strong quarterly earnings on Wednesday, said it would pay out 37.9 per cent of its revenue as compensation to employees, the second-lowest percentage in its history as a publicly traded firm, according
to a report by The Wall Street Journal.
Morgan Stanley, meanwhile, plans to defer bonuses over three years for senior bankers and traders who make more than $350,000 (U.S.), according to several reports.
The firm will report its quarterly earnings on Friday.
Of course, Wall Street remains a very profitable place and its employees are extremely well paid. But the industry is chafing under new regulatory constraints, reduced leverage and lower trading volumes. Many firms have announced layoffs as they adjust to the new environment.
In that subdued climate, banks aren't handing out the giant bonus cheques of yesteryear. Employees at Goldman Sachs and Morgan Stanley will discover the amount of their bonuses on Thursday, leading to celebration for some and disappointment for others.
Bonus season in Canada, which for the big bank-owned dealers unfolded about a month ago, was also more restrained than usual. The largest securities firms in the country generally had pretty good years in capital markets, and most of the big Canadian banks set aside more for variable compensation in the fiscal year that ended Oct. 31.
Still, there was a move to hold off on big increases in payouts even to top performers, given a prevailing mood among shareholders that bonuses needed to take a back seat to profit growth.
James Gorman, Morgan Stanley's CEO, has been one of the most vocal leaders on Wall Street about the need to rein in compensation. Pay in the industry is "way too high," he said in an interview last year with the Financial Times. "As a shareholder I'm sort of sympathetic to the shareholder view that the industry is still overpaid."
A Morgan Stanley spokesperson declined to comment on the reported plan by the firm to defer bonuses.
For Mr. Dimon of JPMorgan, this was no ordinary pay cut related to a challenging business environment or poor operating results. In fact, the bank managed to earn a record $21.3-billion in profit last year, despite losing $6.2-billion on a disastrous trade that originated with one of its traders in the U.K. – the so-called London Whale.
In light of that blunder, the bank announced Wednesday that Mr. Dimon's compensation for 2012 will be slashed to $11.5-million in 2012 from $23-million in 2011.
The decreased level of compensation takes Mr. Dimon out of the running for the title of best-paid CEO on Wall Street, a crown he has worn in recent years.
JPMorgan also made public two internal reports related to the fiasco. One of the reports, 129 pages long, provides a glimpse inside the bank's failure to manage trading risks but offers only oblique criticism of Mr. Dimon.
Mr. Dimon "could have better tested his reliance on what he was told" by his senior managers as the trading losses began to escalate, the report said.
With files from reporter Boyd Erman in Toronto