Will Wall Street Careers Ever Again Seem as Attractive as Billions in Bonuses “Evaporate?”

Published on July 11th, 2008 by Alan Sklover

Robert*,
49, an information technology executive at a ”Wall Street” firm came to
us in a quandary. Until last year, he had $1.4 million worth of
stock options in his employer’s stock, he had received as part of
his annual bonuses given to him over his 19 years with the
company.  Today those options are worthless. His daughter, 20, is a
pre-med in her sophomore year, and his two sons, 13 and 17, are in
private school. He has no savings, other than his stock options, which
are “under water,” and thus worthless.  And now he faces - and fears
-possibly losing his job. He asked us to help him strategize about how
he might make a compelling request for a better-than-standard severance
package.

Something very unusual has recently happened that few seem to
realize - most ”Wall Street” employees have lost a great part of the
compensation they’ve earned over the last five, ten, fifteen and in
some cases, thirty years.  Each year, their bonuses were paid in good
part in various forms of “equity,” that is, stock, stock options,
“phantom stock,” etc. Over the last year, many of them have lost much,
most, or all of its value. Wiped out. Something unimaginable until a
few months ago.

Many people don’t realize how much annual bonuses mean to those who
work on Wall Street, and how much of those annual bonuses are paid in
stock and stock options. Employees - even clerical workers - employed
at Bear Stearns saw their stock slide in some 10 months from $172 a
share to $10 a share.  A million-dollar nest-egg, surely enough for
educating three kids, is now worth just $58,000. Worse, employees of
Ambac, the municipal bond insurer, saw their stock fall from $82 to $1
this year. A million-dollar nest-egg for an Ambac employee is now worth
just $12,000, a pittance when compared to college costs.  And to add
icing to the cake, some estimate that Wall Street faces up to 75,000
layoffs in coming months.  

Undoubtedly, some will say to themselves, “Serves them right. They
should have saved, like the rest of us.” The plain truth is, equity
became the “savings” of so many Wall Street employees, and why not?
Surely, they had no reason to see coming the volatility and tumult that
came this year. Did anyone with a retirement, investment or family
portfolio see it coming?

Will Wall Street employment ever again seem so attractive to the
“best and brightest?”  Will Wall Street firms need to provide greater
job security in return for formerly outsized compensation?  Will the
collective memory of parents who “lost it all” taint the dreams of
their children? Is this temporary, long-term or permanent?  Will the
next generation come to see investment banking as an ill-advised
career? Will parents once again steer their kids to the relative safety
of medicine and law, or the pensions available from government service
or teaching?   

About a year ago I appeared on Maria Bartiromo’s CNBC afternoon
cable show, “Closing Bell.” I debated an Institutional Investor, who
believed that Wall Street compensation was “out of control,” and “over
the top.” I reminded him that of the volatility and evanescent nature
of equity as a part of compensation. As the saying goes, “On Wall
Street, some years it’s chicken, others years it’s feathers.”  He
resisted the point. I expect that he now understands my point a bit
better.  

My paternal grandfather came to this country from southern Russia.
He was a dry-wall carpenter. He worked, saved, invested and grew to own
eight apartment buildings, but lost every penny he owned in the Great
Depression when his tenants couldn’t pay their rents. According to my
father, he was “never the same, a broken man.” Funny thing . . . I
haven’t forgotten that have I? Only time will tell what effect there
will be on the children and grandchildren of people who “lost it all”
this year. But memories of the losses incurred, and the changes
in familiy circumstances that will inevitably ensue, surely will not
fade from family memories soon.  Something very “big” may have
happened.  Only time will tell.

(* Robert’s story is a true one; certain facts have been changed to hide his identity.)