The problem isn't unique to Lazard, according to Bove, who says Morgan Stanley, Goldman Sachs, Evercore (EVR) and Jefferies (JEF) all have hefty deferred compensation costs that will weigh on earnings in future years.
"They've been offering these deferred compensation packages since they've been trying to get their current compensation down" to address political pressures, he says.
The golden rule in investment banking has long been that compensation should not exceed 50% of revenues, but Lazard has struggled to hit its even less ambitious goal of "mid- to high-50s," as stated by CEO Ken Jacobs during the firm's earnings call on Monday.
The company accrued compensation at more than 72% of revenues in the fourth quarter, bringing the total for 2011 to 62%, according to Kotowski's research.By contrast, Goldman Sachs handily beat analyst estimates by tightening compensation in the fourth quarter. Goldman accrued compensation at 36.5% of revenues in the fourth quarter. Still, while revenues fell by 26% in 2011, it only managed to trim compensation by 21%, according to a slide presentation Goldman gave at the Credit Suisse financial services forum on Wednesday. In 2010, when revenues fell by 13%, pay came down by just 5%. The big outlier was 2009, when Goldman grew revenues by a whopping 103% coming out of the 2008 crisis but grew pay by "just" 48% in response to widespread public outrage. Morgan Stanley (MS) paid out 57% of revenues in the fourth quarter, but it had been more conservative in the third quarter, accruing at just 37.3% of revenues, according to Kotowski. Morgan Stanley has also made a dramatic gesture of capping cash bonuses at $125,000 in the first year, though the move may be more powerful as a symbol than anything else. Morgan Stanley CEO James Gorman also got lots of attention for compensation-related comments he made at Davos, saying unhappy executives were free to leave.
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