Wall Street bonuses are set to fall by an average of 20 to 30 percent this year from a year ago, according to a closely watched compensation survey—the weakest bonus season since the financial crisis and a reflection of the leaner times confronting the industry.
Those who work in trading and investment banking—usually Wall Street’s most profitable businesses, although struggling this year—will experience the sharpest drops in pay, said Alan Johnson, managing director of Johnson Associates, the firm that conducted the survey.
Employees in less volatile businesses, like asset management and commercial banking, will make about what they did in 2010.
And bonuses for top executives like Lloyd C. Blankfein of Goldman Sachs and Jamie Dimon of JPMorgan Chase are likely to fall sharply as well, Mr. Johnson said.
The bonus forecast will come as no surprise to many on Wall Street. Trading profits have slumped and new Dodd-Frank regulations have raised the cost of doing business. Even Goldman Sachs, a firm known for its earning power, last month reported its first quarterly loss since the financial crisis.
Goldman, Bank of America and other Wall Street firms have been cutting thousands of jobs.
“It is disappointing,” Mr. Johnson said in an interview. “I think we were all hoping we were out of this morass.”
This is the time of the year when Wall Street firms start to make decisions on which bankers and traders will be rewarded for 2011.
For many of them, the year-end bonus typically represents the bulk of their compensation. The firms pay as much as 60 percent of their annual revenue in compensation, so much is at stake in how they divvy up their bonus pools.
Wall Street is “effective at knowing what it can get away with” and for months has been managing down expectations of employees about pay, said Michael J. Driscoll, a former senior trader at Bear Stearns. This year the message has been that “star performers” will be paid and the rest of Wall Street will feel the pain, he said.
“Wall Street is in the process of re-evaluating what each seat is worth and having been in one of those seats it’s tough,” said Mr. Driscoll, now a professor at Adelphi University’s business school. “Right or not, compensation is how you measure yourself and your value. You may still be making a lot, but it is a lot less than what you were making and that is what matters.”
While overall compensation may be down, it is still out of sight compared with what most Americans make. Wall Street workers make a base salary of $100,000 to $1 million for top executives, but most of their pay comes at the end of the year in a big one-time bonus.
Employees are typically informed of their bonus in January or February, with checks going out shortly after.
In the first nine months of the year, Goldman Sachs, Morgan Stanley , JPMorgan Chase, Bank of America and Citigroup set aside almost $93 billion to pay employees, up from $91.25 billion in the year ago period, according to Johnson Associates.
The final number, however, is not set until the fourth quarter, when firms have a clear idea of their total revenue for the year.
Johnson Associates surveys as many 20 firms every year.
Big paydays came under fire during the financial crisis as lawmakers and others called for restrictions on pay. Wall Street responded by lowering pay in some instances and firms are issuing more incentive based compensation, a move aimed at reducing reckless risk-taking. Firms also raised base salaries of employees after receiving criticism that big bonuses also encouraged employees to take unnecessary risks. Now, the market turmoil from Europe’s debt crisis and the weak economy in the United States appear to be reining in Wall Street pay.
This year, the biggest loser will be fixed-income employees, Mr. Johnson said. That business is historically a big money maker, but profits in trading bonds, currencies and commodities have been hard to come by because of the uncertainty on global markets and economic weakness in the United States.
Goldman Sachs, one of the biggest in fixed income, made $12.07 billion in its fixed income, currency and commodities division during the first nine months of the year, down 37 percent from levels a year ago.
For employees on equity trading desks, compensation will fall sharply as well, about 20 to 30 percent. The same goes for investment banking, where pay will be down 10 to 20 percent.
Not everyone is going home with less, however, according to the Johnson survey.
Brokers who manage very wealthy clients will have compensation gains of as much as 5 percent. Some employees in commercial and retail banking may see either a small 5 percent drop in pay, or potentially a 5 percent bump, in part because client deposits are growing. Other areas, like private equity and prime brokerage, will see their compensation stay flat or fall just slightly, the survey predicts.
Mr. Johnson said Wall Street should expect continued attention focused on compensation, particularly since efforts like Occupy Wall Street show no signs of weakening.
The protesters, he said, “will say we have camped out in the snow and they haven’t reduced compensation a nickel.”
Wall Street executives, he said, “haven’t gotten the memo at all.”