This might have been one of Wall Street's most dismal years in a decade, but that hasn't stopped bonus cheques from rising an average of 14 per cent.

Four of the biggest U.S. investment banks — Goldman Sachs Group Inc., Morgan Stanley, Lehman Brothers Holdings Inc. and Bear Stearns Cos. — will pay out about $49.6 billion US in compensation this year. Of that, bonuses are traditionally estimated to represent 60 per cent, or almost $30 billion US.

Goldman Sachs CEO Lloyd Blankfein is reportedly in line for a bonus of up to $70 million US in 2007.
(Goldman Sachs/Associated Press)

But that might not sit well with investors who held onto investment bank stocks this year — and watched them plunge by as much as 45 per cent. Investment houses have been slammed by the credit crisis and top executives this last week said they've yet to see a bottom.

Further, some of those executives have agreed to forgo their bonuses this year to reflect the poor performance. Morgan Stanley CEO John Mack and Bear Stearns CEO Jimmy Cayne won't be collecting their payouts.

Mack received no cash bonus a year ago but received stock and options worth an estimated $40.2 million US, well above his $800,000 US base pay. Cayne received a bonus of $33.6 million US in 2006 and base pay of $250,000 US.

Morgan Stanley CEO John Mack is unlikely to be the only Wall Street CEO giving up millions of dollars in holiday money.
(Mark Lennihan/Associated Press)

Goldman Sachs CEO Lloyd Blankfein is reported in line for a bonus of up to $70 million US this year, as the largest U.S. investment bank has largely navigated past any mortgage-related losses. Lehman Brothers' CEO Richard Fuld was granted a $35-million US stock bonus for 2007, up four per cent from last year.

There had been some predictions the increase in bonuses would have been significantly higher. However, layoffs and top managers giving up their bonuses have curtailed that.

Waiting for cheques

For the army of bankers and traders on Wall Street, it remains to be seen what their bonus cheques will offer when they're handed out over the next several weeks. Top performers will still see some significant compensation as an incentive to stay put, while underperformers will suffer, executives at the banks said.

"If you were to normalize our business … you would see we had a record year across the whole enterprise," said Morgan Stanley chief financial officer Colm Kelleher.

Morgan Stanley, the second-largest U.S. investment bank, reported compensation rose 18 per cent to $16.6 billion US from $14 billion US a year earlier. This comes after the investment bank reported Wednesday the first quarterly loss in its history amid a $9.4-billion US writedown due to the credit crisis.

Bear Stearns, the fifth-biggest securities firm, posted the first loss in its 84-year history Thursday after a $1.9-billion US writedown. It reduced compensation this year by 21 per cent to $3.4 billion US from $4.3 billion US in 2006 — and members of its executive management committee, like Cayne, won't be collecting year-end bonuses.

"Compensation levels need to be maintained to reflect market levels," said chief financial officer Sam Molinaro.

At Lehman, compensation rose 9.5 per cent to $9.5 billion US, with bonuses accounting for an estimated $5.7 billion US. The firm booked losses last week but managed to offset most of its mortgage writedowns and beat Wall Street expectations. Head count at the investment bank rose by 10 per cent this year.

Best position

The bankers in the best position this year are at Goldman Sachs.

The largest investment bank said Tuesday it was able to chalk up another record-breaking year with higher investment banking fees and smart bets on mortgage-backed bonds. It beat fourth-quarter projections.

In response, compensation at Goldman rose 20 per cent to $20.1 billion US. That means roughly $12 billion US has been set aside for bonuses.

Still nervously waiting to find out about bonuses are the employees of Merrill Lynch & Co. The largest brokerage won't report fourth-quarter results until January, and there has been some speculation newly appointed CEO John Thain might shake up the bonus structure.

Thain won't get a year-end bonus since he took the job Dec. 1 after Merrill Lynch ousted Stanley O'Neal because of significant subprime losses. But he did take home a $15-million US cash bonus just for taking the job.