"Worst paid employees" is not exactly a desirable reputation for a Wall Street firm looking to recover from huge losses and a chaotic, messy chief executive exit. But Merrill Lynch may be stuck with that unless it dramatically increases its compensation costs in the fourth quarter.

Reuters has run through the earnings reports for Wall Street compensation numbers, and the picture isn't pretty. Three out of five firms set aside less money for compensation in the first three-quarters of this year than they had last year. Only Goldman Sachs and Morgan Stanley have set aside more.

Interestingly, there has been some jockeying for position on Wall Street compensation. Last year, Merrill also was at the bottom of the list for the first three quarters. But it was neck-and-neck with Bear Stearns. This year it is close to $18,000 short of Bear. Morgan Stanley has moved ahead of Lehman, switching second for third place.

Of course, many of these firms may simply be engaging in managing their balance sheets and investor expectations by lowering compensation costs in what was a rough third-quarter for much of Wall Street. Indeed, Merrill all but promised those costs would jump in the third quarter. But if losses from missteps in the credit and derivatives markets are even worse than expected—and most analysts who have looked at the issue have predicted even greater losses at Merrill—that may prove difficult.

The compensation numbers are closely related to per employee revenues, Reuters writes. "Goldman is the top with revenue of nearly $1.2 million per employee for the year to date, while Merrill is at the bottom of the heap, with just $311,916 of revenue per employee," the report says.

After the jump: we run through the Reuters numbers from lowest to highest, with comparisons to last year's first three-quarters compensation figures.

Merrill on track to offer lowest pay on Wall Street [Reuters]

One of the things that Merrill Lynch did to pare its losses in it’s disasterous third-quarter is to dramatically slash compensation costs. Merrill Lynch recorded just under $2 billion on compensation and benefits costs during the third quarter, about half of what of it said it spent during the same period a year ago and less than half of the $4.76 billion it recorded for second quarter of 2007. At the same time, the bank’s employment rolls have grown to 64,200, an additional 8,900 more than a year ago.

Now some of this might be simply accounting hocus-pocus, attempting to reduce costs so that their no-good, very bad fiscal quarter doesn’t look quite so bad. Indeed, Merrill admits as much when it says it may have to accrue compensation costs at higher levels in the fourth quarter. To the extent that this is true, they’re just using phony numbers, which is hardly inspiring in a bank that seems to not to have been too good about estimating losses.

But it’s a grim sign for investment bankers awaiting year-end bonuses. Indeed, it seems that Merrill bankers may lose out in the bonus race this year to colleagues at competing firms. Goldman, for instance, actually increased the amount it recorded for bonus and salary compensation this year.

Even the re-assuring noises the bank is making are, well, less than re-assuring.

“Merrill Lynch remains focused on paying its best performing employees competitively,' the company said in a statement. But apparently it believes it doesn’t have very many of these “best performing employees” this year.

Update: We're not sure if this will make our lads and lasses at Merrill feel better or worse. But here's news that white Merrill's compensation is shrinking, it's not shrinking as fast as earnings. That means the stampeding horde may get a larger portion of the smaller pie. But, of course, since the pie is smaller, the slice will still be smaller than last year.

Merrill Lynch cuts compensation in half [Thomson Financial via CNNMoney]

This Options Group, which tracks all things pay and hiring related on the Street, thinks bonuses will decline as much as 5% in 2007. This would be the first bonus cut in 5 years. Usually more concrete discussions about year-end bonuses start to happen in October and the potential pool becomes clearer. Our current intelligence on this is skeptical: it's really too early to tell.

Watch the LBO market, though. If those buyouts fall apart, it could indicate deeper problems that will hit your bottom line.

Credit Woes Threaten Bonuses On Wall Street [New York Post]

The general feedback to our BonusBumper feature was that it slightly overstated things. Initial reports across the Street reported $110k bonuses for first years at the highest paying banks. When numbers started coming in, most reports we received confirmed that bonuses were $90k - $100k for first years at the top of the range at the highest paying banks.

There may be some less than transparent outliers within banking divisions and Goldman always crashes the summer bonus party late, and may top out the market as it has done the past few years (any word on Goldman numbers or if they’ve been announced yet?), but $100k is a ridiculous chunk of change, especially considering where things were five years ago.

As it stands, bonuses this year represented a 300% increase from 2002 and a 122% increase from 2003, in which the top bonuses for first years at most banks were $25k and $45k respectively.

The bonusbumping is set to continue in spite of Street gargoyles predicting marketpocalypse and more subprime fallout. Record compensation is expected again at year’s end in terms of grown-up bonuses, according to estimates from Johnson Associates. Keep in mind that record compensation would be one dollar more than what was paid out last year, and the percentage increase in compensation is expected to plummet.

One of the people predicting a real slow-down is Jim Cramer, who states in his latest New York Magazine column that:

In the past half-dozen years, the major brokerages in New York added hundreds of thousands of jobs in three areas: mortgage-bond sales and trading, private equity, and prime brokerage (the management of hedge funds’ brokerage accounts). Each has grown by leaps and bounds each year. Now all three are frozen. There are no mortgages to package and sell and no clients who want them. The private-equity deals are all hung. And the way I see it, the hedge-fund business is liable to be cut in half by the chain of mismarking and redemptions. I think that many of these firms have as many as 30 percent more people than they need right now in these departments, and all of them will be cashiered by the end of the year. The lists are being drawn up; the HR people notified. Not too close to the holidays, please! And for those who are left, sorry, no bonuses. The money was all eaten up by severances. Unlike other times on Wall Street, the jobs will dry up across the board, because so many firms have beefed up the same divisions. This time, get laid off at Bear, no walking across the street to Lehman. The departed will be cut off from billions in disposable income that fuel the New York economy.

A little dramatic, but Cramer does have a few good points. There is less pressure on Wall Street firms to dramatically up the ante by doling out big bucks. Since a record number of Big Hitters was reached in June after a record round of hiring, there isn’t much pressure on the Street to recruit, or for firms to differentiate themselves with comp. In fact, it’s the opposite. You’re stuck at the party, and if you haven’t received an invite, you’re unlikely to crash, as hiring freezes are in effect at a number of firms.

Getting laid off, or *only* getting a bonus in the low six-figures is better than losing your roof, or displacing a whole chunk of SoCal. Here’s Cramer again, pulling an opposite Robin Williams (“it is your fault…it is your fault”):

I fear that the pain and contractions in the housing and credit markets could cause as many as 7 million homeowners who bought houses in the past few years to flee or be tossed from their dwellings, even if the rest of the stock market thrives. It’s why I went off the reservation and screamed about this problem on television the other day (my latest unhinged rant). I see what could go wrong. I see how the forgotten man gets forgotten, and I feel helpless because I don’t see anyone doing a whole hell of a lot about it.

Sure Tom Joad may have overstated his income by just a smidge and not read his credit agreement to begin with (it didn’t hurt that Rosasharn was the loan offier), but if nothing else, you should carry the guilt of his impending trip back to the dust bowl with you.

Bloody and Bloodier [New York Magazine]

On July 17, a device containing confidential employee information, including yours (if you have an at ml dot come e-mail address), was reported stolen from a Merrill Lynch office. It remains at large. Today, someone from ML IT informed the Lynchettes about this breach of security. The writer of the “Personal Information Security Alert” sounded empathetic, but not contrite, which makes sense, since he presumably was not the person who stole the device, and has nothing to apologize for, unless he did, in which case he’ll be looking at the business end of a hissy fit courtesy Stanley O’Neal in due time. OT!

The device contains names, social security numbers, ML identification numbers and compensation data. It does not contain home addresses or birthdays, so you will not be getting a “Look Who’s 40!” card from your identity thief.

Merrill states that it is actively investigating the problem, so much so that it was too busy to get around writing this email until almost three weeks after the fact. Merilll had pegged the chances of the data being compromised at “extremely remote” and weren’t going to say anything about it, but caught a late-viewing of Live Free or Die Hard and figured it’d be best to fess up. Just in case it’s the beginning of the fire sale.

Here it is, people: We’re offering $100 to whoever can find the device and deliver it to us, so that we might use the information within to blackmail certain Merrill employees who’ve late become thorns in our asses (no names, for now, but here’s a hint: this ML GWM employee once sparred in an alleyway with Carney after a tiff broke out regarding who was next on stage at an open mic night in Bayonne, not far from the office where the object in question was stolen, coincidentally). And also so we can update our bonus bumper.

Letter of regret, after the jump

Here's the latest BonusBumper chart. Thanks UBS, for driving down the median. Bonus numbers are starting to roll in, and while there isn't any speculation on whether bonuses are higher than the amounts listed, there is speculation that they may be a tad lower. It's also possible that the majority of bonuses have diverged so far from the top that no one knows what the real top is anymore. It doesn't help that that top analyst is usually a complete pain in the arse and the one person in your group who's mum about the extent of that obscene lump sum.

Comment or send any bonus info to: tips at dealbreaker dot com

The first round of banks are about to give bonus numbers for analysts. Here's the latest BonusBumper chart. There still are a few notable absences - UBS, Credit Suisse, Lazard and SUNTRUST. Also if anyone has any info on bonuses of analysts in equity research groups, send it to - tips at dealbreaker dot com.

Latest bonus charts, now with 100% more RBC Capital Markets. The median bonus has risen a full $5k per year since the BonusBumer exercise began - so keep emailing in and pressuring staffers to bump those bonuses! Send info to : tips at dealbreaker dot com.

Or 0.59 tubes of ChapStick, which considering how much this person is going to suck, will be sorely needed. What is the real purchasing power of these bloated analyst bonuses, or at least how long will it take to save up for that Phantom Drophead convertible?

Thanks to Forbes' "Money Meter" you can find out, and compare yourself to semi-significant people (or at least celebrities) in the process. Let's say that the BEST first year analyst at Goldman (aiming high, as he/she (well, it's Goldman, so he) should) wants to buy...Berkshire Hathaway.

The BEST Goldman first year makes $170k a year with that top tier bonus of $110k and a base of $60k. Berkshire Hathaway's market cap is around $170bn, which means that it will only take one million years (in a special version of hell) as the BEST Goldman first year IB analyst to buy Buffet's bloated baby (assuming no taxes, no growth, no premium, and that Buffet consumes the souls of the living (salmon) to stay eternally youthful). This combines the dreams of the BEST first year analyst at Goldman - he gets to be an IB analyst forever, and one day be a super big deal, or at least full of folksy wisdom.

The average American, on the other hand, makes only 22 cents on the dollar of every BEST Goldman first year. Warren Buffet makes almost $600 in this time.

The Money Meter [Forbes]

Compensation consultant Johnson Associates projects that trader and IB bonuses will increase up to 15% from last year, although this is slightly less than the 17% growth the securities industry bonus pool experienced last year. Private equity bonus pools are expected to increase 20%+, mostly because of deal volume, but also because they're still scrambling to match or out-pace IB (I know many PE firms were jacking up bonuses at the last minute last summer when partners got wind of projected IB comp for analyst and associate levels). Retail banking incentives are expected to stay relatively flat, with growth in the 0%-5% range.

Wall Street pay headed even higher - study [Reuters]

I bumped Lehman, after a slew of emails, comments and a couple of poisoned goldfish really brought Lehman's planned comp package into focus for this year. Still no word on UBS, Credit Suisse, Lazard or SUNTRUST, but plug those holes (or bump those existing bonus numbers) by sending any info to: tips at dealbreaker dot com.

To all the IB analysts - since everyone but you will have next Monday off (at least you get to wear jeans), here is an updated taste of your comp for this year. Recent additions include BoA (the $50k you get to just hang out for a year not included) and Bank of Montreal, despite those huge trading losses.

Base salaries for 1/2/3 years are $60k/$70k/$80k, making total (pre-tax) comp in the top tier at Goldman $170k/$200k/$235k. Of course, almost half of that bonus flies out the door instantly from taxes.

There is another analyst bonus spreadsheet running around that is much more homogenous than other initial reports, with only a couple banks bringing up the rear and everyone else matching the very top (the current $110k/$130k/$155k). I think this might be dubious, since it seems like extrapolation rather than any hard numerical report. It seems like in a lot of cases the staffers at banks are throwing the analysts a bone and saying that "sure, Bank X will match the top of the Street." Then someone plugs in the top numbers on the spreadsheet for that bank. Granted the goal is to pressure all the banks to match the top here, and bump bonuses upwards until that happens, but I'm skeptical of that report thus far.

We already knew Bank of Montreal lost a bunch of money on natural gas trading, as the bank revealed to investors in late April that it had pretax commodity trading losses between C$350mm-C$450mm. This estimate turned out to be juuuuuust a bit outside, as BMO revealed today that pretax losses were actually C$680mm. Whoops. Fortunately, there were a few Hunter-esque figures to take the fall, from the Wall Street Journal:

The Canadian bank known as Bank of Montreal also said that two unnamed employees in the commodities-trading operations were placed on leave. They are no longer with the company. Oversight of the business has also changed, and new traders have been added to help reduce the portfolio's risk.

The bank blamed (not oil prices and an unseasonably cold April for once) a quickly moving market combined with liquidity issues and historically low volatility.

A reader also just sent bonus figures for BMO based upon information from a former staffer ($90k/$110k/$130k), placing it at the bottom of the bonus barrel along with Lehman and Piper Jaffray so far.

Send those projected bonus numbers to: tips at dealbreaker dot com

BMO Raises Amount of Losses From Energy Trading [Wall Street Journal]

There aren't any updates to the BonusBumer chart today (you can check the latest chart out here). We encourage you to send any new info, especially the missing pieces of the puzzle (there are several banks absent from the list), to "tips at dealbreaker dot com." Instead of a bonus update, a bonus digression:

It's actually remarkable that the banks risk reputational shortfall among the proletariat in the first place by not matching each other in terms of top bonus payouts. Where an individual analyst is hardly a blip on the value-add spectrum, in aggregate analysts keep the gears of a bank (or deal) moving, and without them banks would be left with MDs who actually had to print documents, model, make charts and perform logistical feats people making seven figures are utterly incapable of doing. For some reason that part of the brain shuts off when you make MD, even for the true sadists (cyborgs?) that are A-MD (yes, straight Analyst to MD promotes - we had 2 of them in our group, and they were just as unsympathetic to killing you on a project as everyone else). An analyst-free bank would quickly devolve into a Lord of the Flies-esque situation (documents printed with feces, human blood?), and it would only be a matter of time before the fat guy with glasses who runs equities would be thrown off a cliff.

As often noted, and what you find out quickly on bonus day if you have lips that aren't permanently suctioned to your higher-ups, the bonus figure banks provide is for the very top of the top tier. The top keeps growing, just so banks can say they increased bonuses, but so does the deviation between the top bonus and the rest of the pack. Banks already have elaborate justification systems in place to swing this. JPMorgan, and I don't know if they still call it this, implemented this thing called "The Star System" in order to justify paying the kid with the best attitude (loosest posterior, biggest toolbox, person who couldn't find a job at the end of two years) the "top" bonus and then paying everyone else (people who actually told the staffer they got another job to be respectful rather than just quitting after getting the second year bonus number) a pretty fair deviation less.

Aside from the ability to smile during a prostate exam (or colonoscopy), there isn't that much of a difference between analysts. The Star System, as I mentioned in my farewell email, was apt in that it usually did a good job of rewarding giant balls of hot flaming gas.

The question is, since banks already inflate the top why don't they just match each other and not risk a "cheap bank" moniker (at least in terms of something pre-pooled and relatively controllable like analyst bonuses)? How imperfect is the information banks are given about other banks that they can't pull this off? The real difference between a cheap bank and a happy, generous bank, is the deviation between the top bonus and the rest of the pack, and how closely the rest of the pack is clustered, which conveniently enough, can never be ascertained from the bonus figures banks provide.

The only real mover in the daily BonusBumper update is Wachovia, which several people pointed was not in the bottom bonus tier. This, according to the analyst program coordinator (den mother?), who at least said Wachovia was going to pay at the top of the market. Someone might want to tell this coordinator to relay to the higher-ups that Wachovia isn't quite at the top of the market yet (bump that bonus!), and that the bank's also committing the cardinal sin of breaking the $20k step rule. Maybe it's a below the Mason-Dixon line thing?

Still no word on the notable absences - Credit Suisse, UBS, Bank of America, Lazard, SUNTRUST

Send any info to : tips at dealbreaker dot com

Here's the updated chart, now with more tiers for your envious pleasure:

Last week we urged you to send in those projected end of year analyst bonus numbers. Here's the info we received so far:

The sources for these range from staffers to analysts to just what random people have been hearing. Of course, SunTrust will inevitably top market, but right now Goldman and Merrill are the leaders of the pay pack, with Lehman, Piper Jaffray and Wachovia bringing up the rear. It's interesting to note that, aside from the projected third year payouts of Merrill and Goldman, banks are staying with a $20k step function for top analyst bonuses in the second and third year. This is a much smaller percentage increase to when there was a $20k step function applied to the median first year bonus of $45k back in 2004.

There are still some holes to fill in (BoA, Credit Suisse, Lazard, UBS, SunTrust), so...

Send any updates, additions or corrections to tips at dealbreaker dot com.

We also encourage any info concerning buy side base and bonus payouts for firms that don't graduate associates to a grown up bonus cycle, or from individuals who go straight to the buy side from college. I know my senior year the holy grail of recruiting pay-wise was to land one of the quant jock positions at Citadel or DE Shaw, which at the time paid $25k more base salary ($80k instead of $55k) and was rumored to provide $150k or so of total comp (opposed to the $100k you'd get if you got a $55k base and $45k bonus).

When I was a professional ankle holder analyst at JPMorgan, before analyst bonus rumor season (starting very soon) a bunch of us would start an elaborate disinformation campaign. One of our mainstays was to claim that SunTrust, a large but still relatively obscure (at least in terms of a major Wall Street advisory practice) southeastern bank, was topping market by $10k+ in analyst bonuses. Part of this was a joke, as bonus speculation emails absolutely rocket around the bottom of the financial barrel, exploiting the naiveté of fresh Street urchins and single day payoffs that justify years of douchebaggery. Bonus pools aside, the real reward was overhearing “I heard SunTrust is paying out $10k more than Goldman this year” at a party.

Jamie Dimon apparently caught wind of our strategy (and the Feds are reading our old emails). Shares of SunTrust (NYSE: STI) soared to a new 52-week high yesterday upon speculation that JPMorgan has its domestic bank beer goggles on again, with a special focus on spending spring break in Panama City, Fl. SunTrust is seen as one of the most synergistic domestic plays for JPMorgan, as it would provide a strong footprint in the fast-growing southeastern US market. Dimon threw out ambiguous acquisition aspirations in a conference call on Monday, commenting that JPMorgan was ready to date again after Bank One.

Back to bonus speculation – to our surprise (and also because starting in 2003 M&A deal volume and forecasts kept increasing year after year) it seemed like the more inflated speculation became, the more banks starting scrambling to issue statements that they were going match the payouts of rivals (to prevent a premature analyst class summer riot). JPMorgan would scramble to match Citi, Goldman would scramble to match Morgan Stanley (or top it and laugh, as one of the last payouts in late summer), and all would scramble initially to match absolute conjecture, and SunTrust. Peer pressure can be a very powerful force in irrational bonus bump-ups (just see what our fellow site Above the Law has done with its Skaddenfreude campaign - caused panic at several firms paying well under market levels), so that’s why we present to you DealBreaker BonusBumper 2007.

Analysts, we encourage you to send in your emails. We will aggregate and print the speculation, rumor, deception, betrayal and forbidden trysts above and below the market average. We'll also rank all top analysts bonuses by bank, and deviations from the "top" as they come out (so tell us what you and your friends are getting).

Shame (or dupe) your superiors into higher bonuses and base salary increases! Your lawyer friends are doing it (or at least when they graduate law school they will be). Showing them a ranking from what at least looks on occasion (Arbor Day) like a credible news source might give you more authority than an email sent with a fake personal account that “Goldman (or SunTrust) is paying [x].”

Send to: tips at dealbreaker dot com

Dimon Zeroes In On Takeover Target [Forbes via DealBook]