Workers at Wall Street firms should expect their cash bonuses to fall by 14% this year, after dropping 13% last year, according to an estimate released in March by New York Comptroller Thomas DiNapoli. Still, experts point out, this figure is quite generous given the sharp declines in profitability for the New York investment firms.
“Cash bonuses were down in 2011, reflecting a difficult year on Wall Street,” DiNapoli said in a statement. “Profits were down sharply and securities firms in New York City resumed downsizing in the second half of the year.
The state comptroller estimates that profits for the broker/dealer operations of New York Stock Exchange member firms, were $13.5 billion in 2011, less than half of the $27.6 billion earned in 2010. If the estimates prove correct, this would be the second year in a row that profits dropped by more than half, according to the comptroller.
Despite declining profits, the total cash bonus pool of Wall Street workers was $19.7 billion, topping total profits by some $6 billion. In 2010, the pool for cash bonuses was $22.8 billion, which put it some $5 billion behind the combined profits of Wall Street firms.
“Industry profits were down 50%, and bonuses were down just 13%. This is moral hazard being displayed at its finest,” said Chip Roame, head of Tiburon Strategic Advisors, in an interview. “Why not shoot for the lights if you are a brokerage firm CEO? If you miss by a lot, as in 2011, you still get 87% of the prior year bonus!” added Roame. “And that followed a huge earnings decline the prior year.”
Average Bonus Levels
The average cash bonus fell 13% to $121,150 per individual in 2011 from $138,940 in 2010. In 2006, the average cash bonus peaked at $191,360.
The comptroller’s office says that the average Wall Street salary (including cash bonuses) in the securities industry grew 16% to $361,180 in 2010, which was 5.5 times higher than the average salary in the rest of the private sector ($66,110). Data are not yet available for 2011.
Income tax collections from Wall Street-related activities accounted for up to 20% of New York state tax revenues before the financial crisis, but that contribution fell to 14% in 2011. Wall Street’s contribution to the city’s tax collections has dropped from 13% of tax revenues to less than 7%.
In 2010, the securities industry in the Big Apple represented 23.5% of all wages paid in the private sector despite accounting for only 5.3% of all private sector jobs.
“Bonuses are based upon the demand in the job market and corporate profits which are way down,” said Mark Elzweig, a New York-based executive-search consultant, in an interview. “They are not based upon the prices of shares in the stock market.”
Like DiNapoli, Elzweig says that the uncertain economic environment is characterized by ongoing layoffs and sporadic hiring. “There is still an oversupply of qualified candidates in many areas. The numbers are misleading because many people received no bonuses at all,” he shared.
Still, Roame says, there could be a bit of a silver lining in 2012 with the recent market upturn. “Lots could change,” the consultant said. “Revenues and profits need to be earned throughout the year, so the early year rise in the markets bodes well.”