Wall Street bonuses set to fall by 20-30% in 2011: Survey

New York: Dismal economic recovery and uncertainty in the world markets have eaten into the generous bonuses doled out to Wall Street executives, who will see a 20-30 percent fall in their year-end incentive payouts this year, according to a survey.

The annual compensation analysis released on Tuesday by the city-based compensation consulting firm Johnson Associates said the biggest declines in bonuses is expected for fixed income, equities professionals and senior management.

“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,” Managing Director of Johnson Associates Alan Johnson said.

He said this will be the second time in four years that Wall Street professionals can expect to receive sharply lower year-end incentive payouts compared to the previous year.

Year-end incentives had previously declined sharply in 2008 during the height of the economic crisis, but then rebounded in the past two years.

The huge bonuses paid to Wall Street executives have not been going down well with the average worker at a time when millions are unemployed and job prospects look bleak.

The Occupy Wall Street movement, which has engulfed cities across the world, has expressed public anger and has highlighted the income disparity and inequality between the top 1 per cent of Wall Street bosses and the remaining “99 percent” of employees.

Bonuses are expected to fall sharply for top Wall Street executives including Goldman Sachs’s Lloyd Blankfein and JPMorgan Chase’s Jamie Dimon.

According to the report, Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America and Citigroup set aside almost $93 billion in the first nine months of the year to pay employees, up from $91.25 billion in the year ago period.

“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,” Johnson said.

The Johnson Associates third quarter compensation analysis shows that year-end incentives, which include cash bonuses and equity awards, will decline by an average 20 to 30 percent this year compared to 2010. Fixed income traders will be the hardest hit, with their year-end incentives expected to decline by as much as 45 percent.

Equities traders and senior management will see their bonuses trimmed by up to 30 percent while year-end payments for investment bankers will fall by 20 percent.

Incentives for the rest of the financial services industry, including asset management, high net worth, retail banking and prime brokerage will be flat or slightly lower or higher than last year.

Lower bonuses will be widespread, with the average managing director taking home about $900,000 in 2011, down from about $1.2 million in the previous year, the report said.

Wall Street top executives typically make a base salary of $100,000 to $1 million and bulk of their pay comes at the end of the year in the form of big one-time bonus. The firms pay as much as 60 percent of their annual revenue in compensation.

In its outlook for the next year, Johnson said a modest recovery can be seen in many segments of the financial services industry in 2012.

“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,” he said.

Additionally, firms will continue to reduce headcount in the US but will add to staff in emerging markets where many companies are expanding their business operations, he added.

PTI