Most on Wall Street should expect to see much lower year-end incentive payouts, compared to 2010, which is the second time in four years this has occurred, according to a yearly compensation analysis by Johnson Associates Inc., a New York-based compensation consulting firm.
During 2008's economic crisis, year-end incentives significantly fell but then recovered the last two years.
"This year started with great promise for a banner year on Wall Street, but hopes for larger bonuses faded over the summer and continue to dim as we approach year end," says Alan Johnson, managing director of Johnson Associates. "The lack of economic recovery, combined with ongoing uncertainty in the world markets and global and regional regulation are driving most financial services firms to significantly reduce the size of their bonus pools. As a result, most but not all professionals will receive smaller payouts this year."
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The analysis shows that year-end incentives, including cash bonuses and equity awards, are expected to drop by an average of 20 to 30 percent in 2011, as opposed to 2010. Fixed-income traders are believed to be the hardest hit, with their year-end incentives hitting a potential decline of 45 percent. Equities traders and senior management could face year-end bonus cuts by up to 30 percent, and year-end payments for investment bankers are anticipated to decline by 20 percent. As far as the remaining financial services industry, those payouts should be flat, slightly lower or even higher than in 2010.
"Looking ahead to 2012, we expect to see a modest recovery in many segments of the financial services industry," Johnson says. "Barring further economic weakness or major collapses among banks or foreign countries, bonuses for investment and commercial bankers and those in asset and wealth management and alternatives could jump by 15 percent or more next year. Additionally, firms will continue to reduce headcount in the United States but will add to staff in emerging markets where many companies are expanding their business operations."
This analysis is founded on the Johnson Associates' continuous monitoring of the financial services industry as well as public data from eight of the largest investment and commercial banks and 10 of the largest asset management firms in the country.
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