By now, it's becoming accepted wisdom that things will never be the same again on Wall Street—not least: the stratospheric salaries and bonuses that bought Gulfstreams, art, and vacation houses in exotic locales.

At New York investment-advisory firm Gerstein, Fisher & Associates, Gregg Fisher has hired 10 people over the last year from the big firms—including a 20-year private-banking veteran from a major investment house, for 40 percent less than she was previously making. He’s also been talking with a fixed income fund manager about coming on board for a quarter of his former salary of $2 million a year. “I told him I couldn’t offer more in a good year to start,” Fisher says. “But we’re still talking so I think that tells you something about the market.”

Such realities are something a lot of bankers may have to get used to. As Wall Street faces its biggest crisis since the Depression, the U.S. financial industry is undergoing a fundamental transformation. Investment banks are essentially commercial banks now, with the requisite limits on risks and rewards. Less leverage—around 10 to 1 at commercial banks compared with the ratios of 30 to 1 or higher that some investment firms enjoyed—will mean less potential for whopping gains. Commercial bank pay structures also tend to be more conservative. That, combined with public pressure and increasing government scrutiny, could mean smaller bonuses and less lavish compensation packages in the future, says Mark Borges, principal at Compensia, a compensation consulting firm in San Francisco.

"It's not that people on Wall Street won't still make a lot of money," says Borges. "You just won't have the financial services area outpacing everyone else the way they did the last several years."

Recruiters and compensation experts are already reporting declining offers for entry-level employees and fewer equity buyouts for senior people. Bonuses are expected to be down at least 40 to 50 percent for 2008, and perhaps more in 2009. For a second-year investment-banking associate who earned base pay of $100,000 and bonus of $100,000, that might mean a $50,000 pay cut. A more senior manager accustomed to bonuses up to three times base salary could be looking at a seven-figure drop. "We're seeing a bit of pressure on managing director salaries," said Alex Alcott, an investment-banking recruiter with Heidrick and Struggles. "Flat is the new up now. Down is the new flat."

The drop in salaries reflects an unusual supply-and-demand quandary in which both the industry and profits are contracting, notes New York compensation consultant Alan Johnson. Unlike with previous downturns, even when things come back, the structure will be different. "It may be that the industry can't support so many jobs anymore," says Johnson. "Or $50 million paychecks."