Managing Director Pay at 1998 Levels

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Despite public complaints about excess Wall Street pay, compensation for managing directors at investment banks is roughly flat compared with 1998 after adjusting for inflation, consultancy Johnson Associates said on Thursday.

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That is a far cry from 2007, when inflation-adjusted compensation levels were about 50 percent higher than they were in the late 1990s, according to a slide presentation from the well-known compensation consultants.

The bank bonus debate is still raging around the world, with regulators cracking down on paychecks and industry heavyweights complaining of an uneven playing field from region to region. Nonetheless most top U.S. and European banks raised staff pay last year.

Johnson predicted compensation ratios, or the percentage of net revenue firms pay out to employees, will rise in coming years to around 50 percent, as companies shed lower-paying trading businesses and move more resources into investment banking and wealth management.

That runs counter to conventional wisdom, which suggests ratios will fall as companies take less risk. Johnson suggested the rising ratios could have unintended consequences, if companies try to lower them to avoid the perception they are paying out too much in compensation. Such consequences could as an increase in outsourcing and a decrease in spending on the back office, Johnson said.

He predicted compensation levels would rise this year from last year, particularly in asset management and brokerage businesses, and that deferrals -- where employees have to wait years for some part of their payout -- will expand.

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Regardless of the trend, Johnson said, firms will have to show their math on payouts in much more detail than they do now.

"Current model cannot be explained or justified. It is necessary to have compensation system that can be explained and defended," he said in one of the slides.