Slightly up, flat, flatter, flattest, down, splash! Such have been the ever evolving forecasts for what has become an annual spectacle not unlike a crowning sporting event – the year-end allotment of Wall Street bonuses. Having come off a “flat” year for compensation in 2010, bankers, traders, asset managers and analysts were confident that 2011 would get them back on track with expectations of annual increases. According to a recent Johnson Associates survey, Wall Street bonuses are now projected to fall between 35 and 45 percent. Ouch! Even senior management is expected to take a cut this year with year-end bonuses shrinking by 20 to 30 percent. Big ouch! Because Wall Street compensation is comprised predominantly of year-end bonuses, that represents a pretty sizable haircut.
Source: www.money.cnn.com
Some business sectors will be hit harder than others, as bonuses are typically tied to revenues, and business was better in some sectors than others. The fixed income sector, which has experienced the largest revenue declines thus far, will likely see the smallest payout. The trading and investment banking businesses have also experienced significant revenue declines, so there will probably be fewer BMWs under the Christmas tree. And, this year, Managing Directors won’t be immune to slashes in compensation with their average annual comp falling to just over $1 million, down from $1.4 million.
Employees in the asset management businesses – private equity and hedge funds – had expected their bonuses to be up this year, by as much as 5%, but are now hoping to end the year even. These business lines were less affected by the increased costs of onerous Dodd-Frank regulations, and, until just recently had seen much less volatility in their total revenue, thanks to management fees. But, that could change as the year winds down if the pace of hedge fund outflows continues and private equity exit activity doesn’t improve.
By all measures, this is as close to a disastrous year for bonuses as there has been since the financial crisis. For those who measure their worth, not just in actual monetary terms, but in terms of the increase in their compensation, they probably aren’t feeling too good about themselves. But they’re not likely to get much sympathy from the Occupy movement or the “tax the rich” politicians.
