The Bonus Bet

Some loyal readers may recall that back in October I entered into a wager with Jesse Eisinger, who had written in Portfolio that "bonus season this year will make Montgomery Burns look generous". If aggregate Wall Street bonuses fell by at least 10% in 2007, I'd buy him a bottle of Scotch; if not, he'd be the one doing the buying.

Now that Merrill has reported, all the numbers are out. According to Bloomberg, Wall Street bonuses in 2007 totalled $39.34 billion, up 8.7% from $36.19 billion in 2006. Of the five independent investment banks on Wall Street, only Merrill Lynch and Bear Stearns saw their bonuses fall: the rest saw rises.

Part of the reason I won the bet so easily is that total headcount on Wall Street grew substantially in 2007, from 165,293 to 185,687: a rise of 12.3%. Aggregate bonuses per employee, then, ended up falling from $218,945 in 2006 to $211,862 in 2007. But even that is a pretty modest drop of just 3.3%.

What happens if you exclude the uniquely-profitable Goldman Sachs? Ex-Goldman bonuses were $26.32 billion in 2006, and $27.23 billion in 2007. There's still an increase, although it's now only 3.5% rather than 8.7%.

All of this does help to explain how Manhattan property prices have managed to defy gravity even as the rest of the country is suffering through a nasty housing-market crunch. New York is an industry town, and that industry is continuing to pay its employees extremely well.