Wall Street employees, whose paychecks have often been cut in recent years, are likely to get a slight bump in their bonuses this year. The catch: the increase will come on top of one of the worst years for bank pay in recent memory.
Year-end incentives, which include cash bonuses and stock awards, will be flat to up to 10 percent higher when compared with last year, according to a closely watched compensation survey to be released on Monday. But firms drastically cut costs, employment and, as a result, pay, in 2011.
"It has been a slow recovery, just like the economy," said Alan Johnson, managing director of Johnson Associates, the privately held firm that conducted the survey. "Following a year when year-end incentives declined by as much as 30 percent, the fact that many firms are able to keep this year's bonuses flat or slightly larger is notable."
Johnson Associates, based in New York, surveyed 10 public asset management firms, eight major banks and more than a dozen other financial institutions.
Business on Wall Street has picked up somewhat in 2012, but firms are still cutting both compensation and other expenses to save money and improve their profits.
Just last week, UBS said it was laying off 10,000 employees worldwide, or 15 percent of its staff. Most of these cuts will come from its investment bank, which houses businesses like sales and trading. Firms have found these units, where bonuses were once lucrative, more costly to sustain in the wake of regulatory changes.
Investment bankers, whose pay has fallen consistently in recent years, should not hold out for a pay increase this year, Mr. Johnson said. Bankers' pay is expected to drop as much as 10 percent this year. "Bankers have gone from masters of the universe to masters of their block," he joked.
Roy C. Smith, a professor of finance at New York University, said firms had cut positions since the financial crisis as revenue fell. Firms are also contending with regulations that are forcing them to sell off certain segments, or at least cut back, like proprietary trading, or trading for their own accounts. "They are cutting back as much as they can get away with," he said.
Wall Street firms set aside money all year for bonuses and allocate it to employees after they know their year-end results. Top executives and boards are now starting to think about who will make what, and the stakes are high.
These bonuses are typically in addition to a base salary, which on Wall Street can range from $100,000 to more than $1 million for top executives.
Roughly half of all the revenue generated on Wall Street goes toward compensation, and most of it is paid in the form of a year-end bonus. So far this year, Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America and Citigroup have set aside $92.49 billion to pay employees, down slightly from $92.81 billion in the year ago period, according to Johnson Associates.
It's too early to tell what this will mean for individual bonuses in early 2013. Investors will know in January when fourth-quarter results are announced how much firms have set aside to cover compensation and benefits.
Bond or fixed-income traders, who had the deepest declines in 2011, are projected to gain the biggest increase in the bonuses this year, from 10 to 20 percent, Mr. Johnson said. Employees in less volatile businesses, like asset management and commercial banking, will take in roughly what they did last year, or possibly be given an increase of as much as 10 percent.
Employees at the firms' hedge funds and private equity units can expect, on average, no increase to a 5 percent increase in bonuses, the survey predicted.
Bonuses for top executives, like Lloyd C. Blankfein at Goldman Sachs, will stay roughly the same as well, falling or rising about 5 percent. In 2011 Mr. Blankfein made about $12 million.
"These figures, compared to what real people make, are enormous, but compared to what Wall Street executives made in 2006 and 2007 it's a fraction of the pay," Mr. Johnson said. Mr. Blankfein, for instance, made $68.5 million for his work in 2007, the year before the financial crisis. At the time it was a record payday for a chief executive of a big Wall Street firm.