Wall Street faces new frontier on bonuses and perks

By Jonathan Spicer and Jonathan Stempel

NEW YORK (Reuters) - During the years of fat if illusory profits, Wall Street and the rest of the U.S. banking industry justified doling out lavish bonuses to top employees by arguing that if they did not, someone else would.

Times change.

President Barack Obama's call to cap executive pay at $500,000 (347,640 pounds) for financial companies getting taxpayer aid comes as lenders try to cut costs and risk, and as Washington politicians and other critics demand a new austerity.

"Low compensation is something that CEOs of large banks have not seen before," said Yaniv Grinstein, a professor at Cornell University's business school and an executive pay specialist. "At the same time, market conditions today are probably such that opportunities elsewhere are not as they used to be, so (caps) might not be as detrimental."

Executives and other top performers may once have been more of a flight risk had they not received that seven-figure bonus or that extra bottle of Sassicaia after closing a big deal.

But tens of thousands of jobs have been lost in the banking industry, and those who still have jobs might feel fortunate to be employed at all.

And while smaller banks such as Evercore Partners Inc (EVR.N) Greenhill & Co (GHL.N) and Lazard Ltd (LAZ.N) that have not joined the Troubled Asset Relief Program could pluck top talent from bigger rivals, they may not need to pay up for new recruits when there is less cash going around to begin with.

Talent flight is "certainly a possibility," said Lauren Smith, a Keefe, Bruyette & Woods Inc analyst. "But you would go to a Lazard, Greenhill (or) Evercore because of the difference in the business model relative to the big firms, and because of the cultural aspects. It's a real cultural divide."