Big payouts are the exception, not the rule, for financial-services workers. Many still face pay cuts or layoffs
Top executives and traders at some banks are expected to receive huge bonuses this year, and at least one big institution is starting to hire more loan officers. But in the banks' back offices, many other workers—including those in technology services, human resources, and support departments—face layoffs, outsourcing, and reduced pay.
The investment banking operations of Goldman Sachs (GS), Morgan Stanley (MS), and JPMorgan Chase (JPM) are on track to pay record bonuses this year of about $29.7 billion, analysts say. That's an increase of 60% from last year and it would even beat the previous high of $26.8 billion in 2007. Further down the income ladder, some banks are easing up on pay lids as well. Effective in 2010, for instance, JPMorgan Chase will lift a salary freeze on employees earning more than $60,000 a year. It also has restored matching payments for employee retirement accounts and plans to give a $500 "special award" to staff members who earn less than $60,000.
But for the most part, support staffers who have managed to keep their jobs in financial services face stagnant or falling compensation. Average real hourly wages for nonsupervisory workers in financial services have increased a mere penny so far this year, from $20.46 in January to $20.47 in September, according to the Bureau of Labor Statistics. That's after dipping to $20.40 in February.
Pay Declines for Rank-and-File
"[W]orkers who are not in revenue-generating positions…are not usually eligible for the big bonuses," says Christian Britton, a compensation analyst at PRM Consulting, a compensation firm in Washington. "These positions are usually more expendable."
Many job titles at financial institutions experienced either no pay raises or pay cuts from 2008 to 2009, according to Crowe Horwath, an accounting and consulting firm in Chicago. During that period, chief credit managers, for instance, saw compensation shrink by 6.4%. Bank branch managers saw a decrease of 5.8% and commercial loan officers saw no increase.
"For us, it's not what you read in the headlines," said a Barclays Bank (BCS) New York City employee in his twenties, referring to anticipated bonus payments for some bankers. He declined to disclose his name or job function, citing a company policy to not speak with the press on compensation matters.
Indeed, studies point to a jobless recovery for the entire IT, finance, procurement, and human resources sectors across all industries, according to the Hackett Group (HCKT), a Miami-based strategic advisory firm. Nearly 1.4 million such jobs will have been lost from the largest companies in Europe and North America between 2008 and 2010, Hackett's research shows. (Hackett's study includes 4,000 North American and European companies, each with more than $1 billion in revenue.) That number includes more than 630,000 jobs lost in Europe and North America in 2009 alone, more than three times the average number of such jobs lost annually from 2000 to 2007.
Financial-Services Outsourcing Rises
Some jobs are being eliminated while others are being outsourced to lower-cost countries. Outsourcing deals in financial services and insurance services doubled in North America from the second quarter to the third in 2009, according to the Everest Group, an outsourcing consulting firm in Dallas. During the quarter, San Francisco-based Wells Fargo (WFC) announced plans to expand its back-end business processing unit in Hyderabad, India and Zurich, Switzerland-based UBS (UBS) entered into a five-year outsourcing contract with Cognizant (CTSH).
"I talk with people [every] day that have been downsized and are out of work for quite a while," says Helene Kugit, managing director of Executive Solutions for Leasing & Finance, a recruitment firm in Holmdel, N.J.
"Financial workers' hourly wages are dropping along with everyone else's, even if they're slightly better than overall nonsupervisory workers," says Heidi Shierholz, an economist for the Economic Policy Institute, a liberal economic think tank in Washington. "Slack in the labor market gives employers no incentive to pay a premium to get or keep good workers. In fact, it puts enormous downward pressure on wages."
The downward trend applies to salaried as well as contract workers. "Companies are offering less for [contract] work, and many people are likely to accept lower wages, driving down income all around," says Sara Horowitz, founder and executive director of the New York City-based Freelancers Union.
Earlier this year, Mike Whitmore, a Unisys (UIS) employee who says he managed a $60 million business-processes outsourcing operation at Washington Mutual, found out he was among the expendable financial-sector workers. Including commissions, Whitmore was being paid about $200,000 a year for overseeing the Washington Mutual work, which involved coordinating check processing from multiple U.S. locations. But then Washington Mutual was taken over by JPMorgan Chase in September 2008, and the new owner began moving the work in-house, Whitmore says. By January the entire division that he had worked on, about 700 people, was eliminated.
Whitmore, 42, is now president of a consulting firm he helped launch in Bellevue, Wash., called Fresh Consulting. He says he has mixed feelings when he hears that big bonuses are back for some bankers. "On one hand, I'm upset with people like the WaMu executives who put the economy in such a predicament," says Whitmore. "Their striving for profits drove the fallout in housing and led to the financial fiasco. At the same time, there are honest and qualified business people who need to be remunerated well. Not all of them were like Bernie Madoff; those who aren't in jail should be able to get bonuses."
Key Personnel Reap Rewards
The pay patterns at financial institutions reflect their priorities, says Crowe Horwath's Timothy Reimink. Bank CEOs saw their cash compensation increase by 1% between 2008 and 2009, according to the firm's research. During that period overall compensation increased nearly 20% for loan-workout officers, 13.9% for top retail banking officers, and 10% for top loan managers.
"It's not that surprising that the position most responsible for restructuring loans saw the largest rise in compensation as its responsibilities rose during the economic crisis," says Reimink. "Financial institutions continue to highly value executives like top retail and loan managers, [because they have] the highest level of responsibility for driving business revenues."
Another sign that banks are investing in what they consider critical personnel: JPMorgan Chase announced on Nov. 10 that it will hire 1,200 mortgage loan officers by the end of 2010, a 60% increase in its sales force. These hires will help the firm pursue new home-mortgage business and assist customers refinancing their home loans.