Wall Street’s biggest firms made out like bandits last year. But when it came to pay, they weren’t especially generous. Now, as banks prepare to report a roaring start to 2021 in first-quarter earnings, there are signs that motivating staff is becoming a more expensive business. In terms of getting a lot out of relatively few employees, this might be as good as it gets.
Take JPMorgan. Jamie Dimon’s bank made $29.5 billion of trading revenue last year and investment banking fees of $9.5 billion, both records. Yet pay remained restrained. Workers in Dimon’s corporate and investment banking division got 24% of the revenue they produced, a decade low. Morgan Stanley was one firm that paid bankers more, but even then, investment bank compensation grew at less than half the rate of revenue.
Banks reporting quarterly earnings this week have even more reason to be kind. Investment-banking fees rose to a record worldwide, according to Refinitiv data, surging 71% in North America – triple the increase elsewhere. The top three banks for equity issuance, bond issuance and merger advice were all U.S. firms. Goldman Sachs and Citigroup dominated the exuberant nook occupied by special-purpose acquisition companies.
At some point, overworked employees start to want bigger rewards or less graft. The miserable first-year analysts at Goldman who recently produced a PowerPoint presentation documenting their 120-hour-week drudgery were a comic example of a serious issue. Bank of America is raising base pay for junior bankers. Law firms like Davis Polk, too, are handing out off-season bonuses in a departure from the norm. Some banks are promising fewer hours – Goldman’s no-work Saturday is an example. All else being equal, though, that means doing less business or hiring more people.
Whether it’s about more employees or larger paychecks, it’s hard to pass on extra costs in the competitive world of dealmaking and trading. Fees on initial public offerings, for example, have barely changed since the 1980s, according to data gathered by IPO-watcher Jay Ritter. Wall Street therefore has few options. Firing underperformers or those whose jobs can be automated is one option. The other is just to enjoy the good times, accept that they can’t last, and remember that many other industries never got so lucky in the first place.