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Hard times on Wall Street as pay cuts, layoffs loom

Wall Street pay is trending lower this year as weak first-quarter earnings, a tough business environment and regulatory restraints will result in cuts across almost all of the industry's lines of business, a new report from compensation consultant Johnson Associates shows.

"I think this is the first time since the (financial) crisis we've seen everyone trend down," said Alan Johnson, managing director of Johnson Associates.

The report is based on results from the first three months of the year, so the outlook might change, Johnson said. However, he did note there has been a psychological change among his firm's clients. Financial companies expect the environment to be harder going forward, marked by more competition, low interest rates for longer and more regulation.

"There is a long list of things, and our clients put this together and say it's just going to get harder," Johnson said.

Incentive pay in the financial industry will decline between 5 percent and 20 percent this year, the report said. The exception to this will be in retail and commercial banking, where pay will be flat to up 5 percent.

Blood on the Street

Business
% Decline from 2015
Asset management 5% to 10%
Hedge funds 5% to 15%
Private equity 5%
High Net Worth 5%
Firm management/staff 10% to 15%
Investment banking advisory 10% to 15%
I-banking underwriting 15% to 20%
Sales and trading (equities) 5% to 15%
Sales and trading (fixed income) 15% to 20%
Retail and commercial banking 0% to 5% gain
Source: Johnson Associates

"This area moves more with the cost of living, and that sector is doing OK to good," Johnson said.

On the other hand, pay in investment banking could decline between 10 percent and 20 percent, while compensation in sales and trading is forecast to fall 5 percent to 20 percent, according to the report. It is not just investment bankers seen taking a pay cut, as hedge fund compensation is estimated to decline 5 percent to 15 percent, and pay for asset managers is seen off 5 percent to 10 percent due to weak inflows and lower to flat appreciation in assets under management.

Along with pay being cut, Johnson said payrolls will be trimmed.

"It's more quiet than in the past, but it's happening as we speak," Johnson said. "This year and going forward there is going to be a fair amount of more job cuts."

Financial firms are continuing to reduce head count in places including London and New York as the cities are just too expensive, opting to cut jobs or move workers to lower-cost centers, he added.