The Few, The Proud, The Well-Paid In HY Market

Compensation in the high yield market will be very lucrative for a select few this year, according to headhunters, buy-siders and sell-siders in the market.

The top segment of the market, the "top top guys," will be getting big increases in their year-end bonuses, most of which will be paid in February, according to one analyst who said that he is not among those elite ranks.

And unlike previous years, it will not be contingent upon whether the players are in investment banking, trading or sales. The big-time bonuses will cut across all segments of the industry, although pros involved in the telecom sector stand the best chance of the seeing the megabucks. But in the large scope, the money depends purely on performance more than sector or anything else.

"It doesn't pay to be good [on Wall Street] anymore," said one headhunter involved in the market. "If you're good, you're only making 60% of the best guy."

The market has evolved such that the top 10 underwriters are very strong, the headhunter said, making high salaries the only meaningful way to separate one firm from the rest of the pack.

"If you have nine strong competitors, how do you differentiate yourself?" he said. And the answer to that - paying for the top talent in the industry- will soak up a company's bonus pool in short order leaving relatively little for the other pros who are not considered the best, he said.

So just how much will the bonuses - usually paid on one lump sum shortly after New Year - be for 1999?

The top performers could get 50% more than last year, which was itself a pretty good year, market sources said. The rest of the crop can expect perhaps a 25% increase over last year, sources said. The best year in recent memory for bonuses was 1997.

As far as dollar figures are concerned, the top-ranked analysts can expect up to $1.5 million to $2 million, according to market sources.

And it's not just the bonuses that are going sky high, sources said. The top analysts are starting to sign multi-year contracts for $2 million per year.

Donaldson, Lufkin & Jennrette and Goldman, Sachs & Co. are two of the best-paying firms usually, sources said. A Goldman spokeswoman said she could not comment on compensation, citing company rules and DLJ officials did not return phone calls.

One portfolio manager noted that the primary difference in bonuses between the buy-side and the sell-side, other than the size, is that buy-siders are pitted against one another, while the Wall Street pros' bonuses are based more on the magnitude of the business they generate.

A portfolio manager can have a lackluster year, but as long as he or she does better than most of the peer group, a nice bonus can be expected. On Wall Street, though, a pro who doesn't perform will not get a big bonus regardless of how others are doing.