Dec. 20 (Bloomberg) -- Wall Street's year-end bonuses climbed 14 percent in a year when shareholders suffered their biggest declines since 2002 and fourth-quarter earnings slumped the most in at least a decade.

Payouts rose at Goldman Sachs Group Inc., Morgan Stanley and Lehman Brothers Holdings Inc., and fell at Bear Stearns Cos. The four New York-based firms are paying $49.7 billion in salaries, benefits and bonuses this year, up from $43.5 billion in 2006, according to company reports. The bonus portion, estimated at 60 percent of the total, rose to $29.8 billion from $26.1 billion. Merrill Lynch & Co., the third-biggest securities firm, is scheduled to report 2007 results next month.

The increase reflects revenue gains in units that trade stocks, provide merger advice and manage assets, which helped counter losses from the collapse of the subprime market. Goldman's record revenue and profit enabled the world's largest securities firm by market value to boost pay by 23 percent, putting pressure on competitors to keep pace.

``It's a very small part of these overall businesses that's been responsible'' for the losses and ``you still have to pay the other folks,'' said Ben Wallace, who helps manage $850 million, including shares of Morgan Stanley and Merrill, at Grimes & Co. in Westborough, Massachusetts.

The gain in total pay exceeded the 11 percent jump in employment for the four firms. That lifted average pay per employee to $408,776 from $398,330 in 2006, with the bonus portion rising to an estimated $245,266 from $238,989 a year ago.

`Pay You Zero'

Investors aren't sharing in the rewards. Bear Stearns has slumped 44 percent this year in New York Stock Exchange composite trading, its worst drop ever, while Morgan Stanley declined 24 percent and Lehman fell 20 percent. Merrill shed 41 percent of its equity value. Only Goldman, led by Chief Executive Officer Lloyd Blankfein, eked out a 1.7 percent gain.

``If the company could get away with paying you zero and still think you would be motivated and you wouldn't leave the firm, they would pay you zero,'' said James Ellman, who manages $200 million, including shares of Morgan Stanley and Merrill, at SeaCliff Capital in San Francisco.

Bear Stearns, the fifth-biggest securities firm, said today that none of the members of its executive committee will receive bonuses for 2007 after the firm reported its first-ever loss. With revenue down 36 percent in 2007 from a year earlier, Bear Stearns reduced compensation by 21 percent to $3.43 billion from $4.34 billion in 2006.

`Streamlining'

``We are taking appropriate steps to position Bear Stearns for renewed profitability in 2008 by focusing our resources on the businesses with growth potential in the current environment, while streamlining our operations in areas with lower expected activity levels,'' Bear Stearns CEO James ``Jimmy'' Cayne, 73, said in a statement today. Cayne, who was paid $40 million last year, won't receive any bonus this year.

Morgan Stanley, the second-biggest U.S. securities firm after Goldman, wrote down $9.4 billion of debt securities yesterday and reported the first quarterly loss in the firm's 72-year history. The ``embarrassing'' loss caused Chief Executive Officer John Mack, who received a $40 million bonus last year, to forgo any reward for 2007.

The company lifted the portion of revenue set aside to compensate employees to 59 percent in 2007 from 47 percent a year earlier, enabling overall compensation to rise 18 percent even as revenue fell 6 percent. Revenue from equities, investment banking and asset management reached a record in 2007, the firm said.

Trading Desk

``These losses came from a small desk, proprietary trading desk, and we didn't feel it was appropriate to punish the rest of the firm for that,'' said Colm Kelleher, Morgan Stanley's chief financial officer, in a conference call with analysts yesterday.

John Thain, who took over as Merrill's CEO at the start of this month after Stan O'Neal was ousted, has pledged to pay employees who made money in a year when the firm may report its first annual loss. In the first nine months of 2007, the company set aside 58.1 percent of revenue to pay staff, up from 49.2 percent a year earlier.

Merrill probably will say revenue fell 40 percent this year to $20.8 billion, David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, wrote in a note to clients today. If the firm sets aside 58 percent of revenue to pay employees, compensation would total $12.1 billion, including about $7.3 billion for bonuses.

Pay for Performance

The company also eased restrictions on sales of prior-year stock awards to give employees a way to raise cash, Merrill said in an internal memo to employees yesterday.

``Most of Merrill Lynch's businesses are actually doing well, and so what you have do in that circumstance is to pay the people who are performing,'' Thain said in a Nov. 15 interview. Thain, 52, will receive at least $44 million in bonus, salary and stock grants from Merrill this year.

Merrill probably will announce a fourth-quarter writedown of $8.6 billion for subprime-related holdings, reducing revenue to $754 million, Trone said.

Lehman, the fourth-biggest securities firm, boosted 2007 revenue by limiting losses from subprime mortgage-related securities and lifting income from fund management, equities and investment banking. Compensation rose 9.5 percent to $9.5 billion, with bonuses accounting for an estimated $5.7 billion.

Fuld and Blankfein

Richard Fuld, Lehman's chairman and chief executive officer, was granted a $35 million stock bonus for 2007, up 4 percent from last year.

Goldman, which set a Wall Street profit record for the fourth consecutive year, raised compensation to $20.1 billion, with an estimated $12.1 billion in bonuses. The increase in compensation was in line with the firm's 22 percent jump in revenue for the year.

Goldman CEO Blankfein, who received a record $54 million in pay last year, will be paid close to $70 million this year, the Wall Street Journal reported last week, citing an unidentified person familiar with the matter.

To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net.

Last Updated: December 20, 2007 17:25 EST