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Wall Street's industry group heads see big slash in pay

by Michael Rudnick | Published December 13, 2011 at 4:45 PM

It takes more than a big title to command premium pay on Wall Street these days.

As investment bankers await what is expected to be a relatively paltry bonus season, heads of industry groups may be among the most disappointed as they discover that their nonmanagerial counterparts are earning close to -- or, in some cases, more than -- they are.

With profits under pressure and smaller bonus pools to divvy up, the large investment banks are being more conscious about how they dole out pay and are increasingly concentrating on rewarding their top revenue generators. While industry group heads perform a key management function, they are not always among groups' top rainmakers and are now being compensated accordingly.

"The premium you receive for being a group head is not what it used to be," said Daniel Ryan, a New York-based partner and sector leader of the financial services practice at Chicago recruiting firm Heidrick & Struggles International Inc. "Those individuals are expected to be producing alongside everyone else."

Industry group heads currently earn an average of 20% to 30% more than the average performing managing directors within their groups, said Michael Karp, co-founder and managing partner of New York recruiting firm Options Group. That compares with close to 50% more before 2008. Historically, group heads and the "superstars" who reported to them would get paid similarly. Now, superstars can potentially earn more than their managers, Karp added.

Richard Stein, a partner at recruiting firm Caldwell Partners International, said before 2008, group heads earned between $6 million and $12 million and managing directors within their groups earned about $1.5 million to $3 million. Now group heads earn between $3 million and $6 million, and managing directors are generally paid between $1 million and $2 million.

Of course, these figures vary from bank to bank and individual to individual, based on their production levels. Indeed, according to a compensation consultant who requested anonymity, top revenue-generating group heads at large investment banks still have the potential to rake in between $15 million and $20 million, while group heads who are "scoring" can earn in the $8 million to $10 million range. But, the compensation consultant added, the "big producers" who work for these group heads can earn between $1.5 million and $7.5 million.

What's changed is the ability of group heads to jump from firm to firm with their entire teams in tow. Before the financial crisis, when hiring was robust, "everyone was counting on group heads for doubling or tripling their departments -- the sky was the limit," the consultant explained. But with team liftouts no longer prevalent in a downsizing Wall Street, the big firms no longer need to worry about keeping happy group heads who are not revenue generators in their own right.

"Now, it's so much based on what you produce," the consultant said.

That attitude puts many group heads at a disadvantage, as they must split their time between managing and building their teams and working on deals. But the title still carries some prestige. And many of the bankers who ascend to the job have already made a lot of money earlier in their careers, said Lawrence Cagney, chairman of the executive compensation and employee benefits group at Debevoise & Plimpton LLP.

The compensation consultant added that group heads typically have the advantage of "getting the call first" from clients seeking to execute transactions. And while they may pass deals to bankers within their groups, the heads generally get "a piece of the action" if they are first to connect with the client, he said.

Also, the heads of groups within industry sectors that are a high priorities to investment banks, such as financial institutions and energy, tend to be compensated better than other heads, said Gary Goldstein, co-founder and president of search firm Whitney Partners. In addition, some banks still pay a premium to their group heads simply due to their title. The large European investment banks tend to reward their group heads better than their U.S. counterparts, the compensation consultant said, as they are "a little more old-world and traditional."

Wall Street bonuses are expected to decline this year across the board. According to Options Group's financial market overview and compensation report released in November, compensation globally is expected to decline 14% in investment banking, which includes M&A and capital markets; 29% in equities; and 33% in fixed income. Two bright spots are wealth management and electronic trading with projected "single digit" compensation increases.

"A lot of big banks are emphasizing wealth management, which is no surprise -- it's the same as taking customer deposits, just very large deposits," said Steven Eckhaus, chairman of the executive employment practice at Katten Muchin Rosenman LLP.

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Michael Rudnick

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