Bank of America Corp plans to increase some investment bankers’ salaries by as much as 70 per cent following the takeover earlier this year of Merrill Lynch & Co, people familiar with the proposal said.
“The concepts we are considering would not increase total compensation,” Brian Moynihan, Bank of America’s president of investment banking and wealth management, wrote yesterday in a memo to employees obtained by Bloomberg News. “Rather, we believe it is responsible, and consistent with the emerging public consensus, that a greater percentage of overall compensation come from fixed base salary.”
Bank of America, which has received $45 billion of taxpayers’ money, may raise the annual base pay for some managing directors to about $300,000 from $180,000, said the people, who declined to be identified because the final numbers are still under discussion.
Salaries for less-senior directors would climb to about $250,000 from $150,000, and vice presidents would get $200,000, up from about $125,000, the people said.
Bonuses will become a “smaller” portion of total compensation, Moynihan wrote in the memo. The adjustments, which may be rolled out as soon as next month, are designed in part to align the salaries of employees at Charlotte, North Carolina- based Bank of America with workers at New York-based Merrill, one person familiar with the plans said. Salaries for traders and other employees outside the investment bank may also be adjusted, the person said.
Government pressure
Governments across the world are gearing up to curb bankers’ year-end cash bonuses after the credit crisis forced regulators and lawmakers to use taxpayer funds to rescue the industry.
The US House passed a bill last week that would impose a 90 per cent tax rate on bonuses paid by American International Group Inc and firms that received more than $5 billion from the government. The Senate is weighing a tax.
“In view of the public concerns about executive compensation, changes in the market, and the need to create a more sustainable compensation culture, all the major financial institutions are evaluating compensation practices,” Moynihan wrote in the memo.
“We are considering proposals that reflect principles that have been outlined by regulators and elected officials, as well as the need to be competitive in the industry.”
The worst financial crisis since the 1930s has spread across the economy, lifting the U.S. unemployment rate to 8.1 percent, the highest in more than 25 years, and causing the biggest quarterly economic contraction since 1982.
‘Public Perception’
“We’re in an economic downturn, the government is pouring billions into banks, and these guys are boosting their salaries,” said Jason Kennedy, chief executive officer of London-based recruitment firm Kennedy Associates. “There’s an issue of public perception.”
The U.S. is projecting that spending to stimulate the economy and rescue the financial system will lead to a $1.75 trillion budget deficit in the current fiscal year.
Bank of America, led by CEO Kenneth Lewis, has struggled to retain Merrill Lynch executives since it bought the investment bank in January. Merrill investment banking chief Greg Fleming and wealth management head Robert McCann have quit, and Andrea Orcel, Merrill’s top investment banker, has told people he’s considering leaving, according to two people with direct knowledge of his situation.
‘Go to Work’
“Orcel has indicated to his leadership team and to Brian Moynihan that he intends to roll his sleeves up, go to work on building our combined businesses, and try to ignore the distractions caused by anonymous sources of questionable reliability or motivation,” bank spokesman Scott Silvestri said in an e-mailed statement.
Before it was acquired by Bank of America, Merrill doled out $14.8 billion in pay and benefits last year, an average of $253,000 per employee, company filings show. New York Attorney General Andrew Cuomo is investigating $3.6 billion of bonuses paid to Merrill executives in December.
The American Recovery and Reinvestment Act of 2009 will require the top five executives at banks that receive at least $500 million of bailout funds, and the 20 top-paid employees at those companies, to forgo cash bonuses.
Bankers can still get stock bonuses under the law, as long as the shares are restricted until their employers repay bailout funds.
Other banks will likely ratchet up salaries as year-end bonuses shrink, according to compensation consultant Alan Johnson. UBS AG, Switzerland’s biggest bank, promoted about 1,500 investment-banking employees and raised their fixed salaries as much as 50 percent, SonntagsZeitung reported this month.
‘Silly’ Salaries
“It’s literally long overdue,” said Johnson, the founder of New York-based compensation-consulting firm Johnson Associates Inc. “Salaries haven’t really changed in 15 years. The whole industry had silly low base salaries. It was kind of a macho thing left over from the 1980s.”
Bonuses make up about two-thirds of a banker’s total compensation. Salaries have ranged from about $80,000 to $300,000, with bonuses often climbing into the millions of dollars, Johnson said. The five biggest Wall Street firms awarded their employees a record $39 billion of bonuses in 2007.
Financial firms worldwide have taken more than $1 trillion of writedowns and credit losses since the subprime mortgage market collapsed in 2007, triggering a global credit contraction. The U.S. government has pledged more than $11.6 trillion on behalf of American taxpayers over the period to prop up financial firms.
To contact the reporters on this story: Jacqueline Simmons in Paris at jackiem@bloomberg.net; Josh Fineman in New York at jfineman@bloomberg.net
