This top Wall Street CEO thinks industry compensation will rise.
Bloomberg News reports that industry compensation will rise as firms’ profitability increases, while large banks are unlikely to make the 'irrational' mistakes of the past, Morgan Stanley CEO James Gorman said.
'Comp should be a reflection of returns for shareholders, so there’s no absolute level' that should be targeted, Gorman, 55, said in a Bloomberg Television interview Thursday with Erik Schatzker. 'As all of the banks are recovering, shareholders are starting to get better returns and compensation will reflect that and reflect market competitive pressures'.
Changes in compensation costs trailed increases in first-half revenue at Goldman Sachs and the investment-bank divisions of Morgan Stanley and JPMorgan. Pay expenses at the five largest Wall Street banks represented 37% of revenue in the first six months, down from 39% a year earlier.
'I think things are pretty rational right now', Gorman said. 'It is a sober environment that we operate in. The leadership of the banks, all of whom I know pretty well, are very sober quality professional people. I don’t see a lot of holes at the large institutions in terms of rational behavior'.
Here's what we know on comp for the first-half:
Bloomberg News reports that compensation at Goldman Sachs, which includes salaries, benefits, bonuses and the expense of deferred pay awarded in prior years, rose 10% to $8.04bn in the first six months of 2103, the firm said Tuesday in a statement.
Revenue in the same period increased 13% to $18.7bn.
Compensation was 38% of revenue in 2012, the second-lowest since Goldman Sachs has been a public company. The ratio of pay to revenue fell in the first half to 43% from 44% in the same period last year.
The first-half compensation expense is enough to pay each of Goldman Sachs’s 31,700 employees $253,691 for the first six months of the year. The firm set aside $7.29bn in the same period of 2012, equal to an average $225,789 for each of the 32,300 people employed by Goldman at the time.
Bloomberg News reports that the firm’s corporate and investment bank allocated almost the same amount of money for employees in the first half from a year earlier as the division’s revenue climbed 9%.
The unit’s $6.36 billion in first-half compensation costs amounted to 33% of revenue, excluding accounting adjustments, down from 34% in the prior year, according to figures posted Friday on the New York-based firm’s website.
The amount is equal to $122,926 for each of the division’s 51,771 employees in the six months.
Morgan Stanley set aside $3.66bn to pay employees at its investment-banking and trading division in the first half, 1.4% less than a year earlier.
Bloomberg News reports that compensation at the institutional-securities unit, which includes salaries, bonuses and the cost of previous deferred awards, equaled 43% of adjusted revenue, down from 46% a year earlier.
Companywide compensation and benefits rose 3.2% to $8.32bn in the first half as adjusted revenue increased 8.4%to $16.8bn. That revenue figure excludes accounting charges known as debt-valuation adjustments. Those changes stem from increases in the value of the company’s debt, under the theory that it would be more expensive to buy back the securities.
The bank’s total compensation cost was enough to pay each of the firm’s 55,610 employees $149,631 on average for the six months, more than the $137,496 it set aside for each of the 58,627 employees a year earlier.
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