Bonus Culture on Wall Street Is Coming to an End

Flags fly from the front of the New York Stock Exchange on Broad Street. (Photo: Michael Nagle/Bloomberg)

Chris Purves has been at the cutting edge of markets for more than a decade – from algorithmic trading to machine learning.

Now the head of UBS Group AG’s Strategic Development Lab is turning his focus to the human survivors of the tech invasion, persuading them to understand things will never be the same. They’re going to have to — in the jargon of Silicon Valley’s missionaries — “unlearn” how they’ve always operated.

It’s not just that their software may know their next move before they do. The extinction of an entire way of life is looming, as Purves sees it: the end of the bonus culture. Compensation will be a last frontier in the onslaught of technology on finance.

(Read: John Buckingham: 5 Value Stock Picks for 2020)

He’s moving traders toward electronic systems as the era of legendary gamblers stalking the markets in search of the $100 million payday becomes a distant memory. What’s coming is increased bureaucratization, an evolution that renders individuals’ judgment less important — and with it the need to reward them as they might have once expected.

“We want to hire people who are less driven by their own bonus and P&L and more by the long-term goal of what the market will look like in say 10 years,” said London-based Purves. “The idea that you are responsible for your own destiny has gone. It’s a team sport now.”

The moves in that direction are only accelerating. Coders have been handed licenses to trade equities at JPMorgan Chase & Co. while they’re the focus of the biggest hiring spree in years for Goldman Sachs Group Inc.’s trading division. Citigroup Inc. plans to recruit 2,500 programmers this year.

The competition for talent with companies like Google and Facebook Inc. hasn’t caused a surge in banker bonuses. And while tech skills are still in high demand, that doesn’t always translate to more compensation. Most trader payouts are forecast to remain steady or decline, according to an analysis by recruiting firm Options Group.

Even as demand for quantitative skills “showed no sign of letting up” last year, pay for these roles will probably stay flat, Options Group projected. For example, an equities managing director in a financial engineering role can expect to earn $570,000 to $775,000 a year, while associates are forecast to earn about $140,000 to $190,000.

To be sure, post-crisis culture and weaker trading revenues have already put a dent in bonuses. Wall Street’s average bonus fell for the first time in three years in 2018 to $153,700, according to the most-recent estimates by the New York State Comptroller.

But it’s not just about the amount of compensation reducing. Bonus culture is now at stake — with tech platforms center stage, traders may no longer be paid on an “eat what you kill” model, but will have their bonuses determined more by the strength of a broader desk or unit.

“Good traders used to be easily identifiable,” said Tim Hall, who spent more than 20 years in banking including at Credit Agricole SA and ING Groep NV. “Now trading is very commoditized and you’re being replaced by platforms and robots and people with different skillsets.”

The mismatch between skills and demands is putting even the industry’s highest-paying jobs at risk, says Marcos Lopez de Prado, the former head of machine learning at the hedge fund AQR Capital Management LLC and now a Cornell University professor.