Though strong earnings bode well for bonus envelopes this year, gaps persist between pay at commercial and investment banks.
Annual bonuses for professionals in debt and capital markets are expected to rise an average of 25% this year, and as much as 50% for top performers in hot markets, according to Scott Page, president of recruiting firm Solomon Page Group, New York.
But big bank earnings won't necessarily translate into big bonuses for all bankers, said observers.
"Wall Street firms still- unquestionably, across the board- have stronger compensation," said T. Lee Pomeroy, a financial executive recruiter at Egon Zender International. "In the banking or universal banking firms there's more spottiness."
Commercial banks compete for first-class talent in only one or two markets, but investment banks are more consistent, he added.
In the most competitive fields-such as high-yield bond underwriting- money-center banks now pay professionals as much as they would earn at bulge-bracket securities houses, recruiters say.
Indeed, managing directors in leveraged finance both on and off Wall Street can pull in $1 million to $2 million this year, according to Johnson Smith & Knisely, a New York search firm.
But in less hotly contested areas, commercial bankers' compensation may not be as rewarding as that of their securities house counterparts. At commercial banks, senior investment bankers with specializations in energy companies or financial institutions might lag.
Many of these executives grew up in traditional relationship banking jobs, and their salaries reflect that.
"There might be a gap between that person and someone at a bulge bracket at the same level," said Joan Zimmerman, a recruiter with GZ Stephens Inc. "There may not be a gap at the more junior level, meaning vice presidents and so forth, but at the highest level and the senior midlevel there may be a gap."
The question of increasing compensation is moot for several commercial banks that have acquired securities firms this year, including Bankers Trust New York Corp., BankAmerica Corp., and NationsBank Corp.,
Those banks have already locked in salaries and bonuses for most key players in the firms they acquired, she said.
"They most assuredly are not going to change the compensation level in the first year out of the chute," said Ms. Zimmerman.
But banks that are building their own securities and investment banking capabilities, such as Chase Manhattan Corp., must pay dearly not just to hire experienced professionals, but to retain them, said observers.
"There are a lot of firms that like to take people from the Chases of the world," said Mr. Page.
Indeed, costs associated with building the securities business at Chase were cited as a reason for a downgrade of Chase shares on Monday to "near- term neutral" from "accumulate" in a report from Merrill Lynch & Co. analyst Judah S. Kraushaar.
"We think ambitious plans to build an integrated investment bank may put operating leverage gains at risk," wrote Mr. Kraushaar.
Commercial banks now competing in the securities businesses also face the challenge of maintaining several different pay scales.
"Most commercial bankers, of course, are involved in traditional lending and retail, where there's no convergence at all because it's not what investment banks do," said Alan Johnson, head of Johnson Associates, a Wall Street compensation consultant.
"It's making it difficult for the commercial banks, because not only do you have these people who make lots of money and are very highly paid, but you also have people that make medium and small amounts of money within the same organization, with the same titles," he added.
That dilemma holds not just for high-profile professionals, but for back-office staffers as well.
"In certain areas, like systems, it's very difficult, because people sit side by side. You program check clearing and I program derivatives, and you make half as much as I do," said Mr. Johnson.
"It's tough. I think everybody's still trying to figure out how to do that right. The easy answer is 'well, we'll just pay competitively based on what you do.' In the real world of course, it's hard to make that stick," he said.
"The bottom line is, if someone's going to make you a lot of money, you're going to have to pay them a lot of money," said Mr. Page.