When it comes to compensation, it looks as if 2013 is going to be remembered as a pretty good year to have worked on Wall Street, unless you are a fixed-income trader.
Financial advisers, asset managers and underwriting investment bankers can expect their 2013 bonuses to rise as much as 15 percent, according to a closely watched compensation survey to be released on Thursday. Over all, Wall Street employees can expect year-end bonuses to grow 5 to 10 percent on average, the second consecutive year of increases, according to the survey, produced by Johnson Associates.
Bonuses for bond traders, who had a terrible year because of interest rate instability, could drop by just as much or more….
“What’s interesting is, for decades almost every year the big Wall Street firms were the highest-paid firms in financial services,” said Alan Johnson, managing director of Johnson Associates. Now, however, the big asset managers are “on par” with what those big firms are making, he said.
Johnson Associates, based in New York, surveyed eight of the country’s largest investment and commercial banks, 10 of the largest asset-management firms and public data.
Wall Street’s bonus season should be a good one for those who manage other people’s money. But for many bond traders and merger bankers, 2013 could be a year to forget.
Year-end bonuses among 18 large banks, securities firms and asset managers could rise 5% to 10% this year, paced by higher payouts for asset-management and wealth-management employees, according to an analysis by compensation consultant Johnson Associates Inc.
The mood may be more subdued on bond-, currency- and commodities-trading desks and within merger-and-acquisition departments—two of Wall Street’s traditional power bases.
Johnson forecasts a 5% to 10% drop in the bonuses paid to merger bankers, while fixed-income traders could see payouts fall more than 15%…..
Despite the mixed money bag this year, the average Wall Street senior official is still doing quite well. In investment banking, a managing director earns about $850,000 a year in salary and bonus, while a vice president, usually one or two rungs below a managing director, collects $400,000, said Alan Johnson, managing director at Johnson Associates.
On trading desks, managing directors average about $750,000 a year and vice presidents $350,000, he said. Big pay packages are less common than they used to be. “There used to be a lot of two or three millions,” Mr. Johnson said.
Wall Street’s biggest risk takers – its bond traders – will probably see their bonuses drop this year, while people in safer roles, such as money managers, will likely get a boost, according to a forecast by compensation consulting firm Johnson Associates.
Overall, it said, individual Wall Street bonuses may rise 5 to 10 percent, on average, compared with last year, as the industry continues its halting recovery from the 2007-2009 financial crisis. Top executives of Wall Street firms will see bonuses rise by as much as 5 percent, Johnson Associates said.
But Alan Johnson, who heads the firm, said there is a wide disparity in payouts among business lines. The bonus spectrum reflects new priorities for Wall Street as much as market conditions, he said…..
“From a regulator’s perspective, that’s what you want,” said Johnson. “You want the banks to be in client businesses that use other people’s money so that they’re not too dependent on trading.”
The nation’s biggest banks are getting squeezed from almost every direction, quarterly reports show, from slumping mortgage demand to a sluggish economy and tumultuous bond markets.
The result has been a lackluster third quarter for lenders from behemoths like J.P. Morgan Chase JPM +0.62% & Co. and Citigroup Inc. to regional banks such as PNC Financial Services Group Inc. and M&T Bank Corp.
The 10 largest traditional commercial banks and securities firms in the U.S. that have reported earnings thus far posted a 6.9% decline in combined adjusted net income, to $17 billion. Adjusted revenue totaled $116 billion for the quarter, a 4.8% decrease from the same period in 2012…..
Alan Johnson, managing director of New York-based compensation-consulting firm Johnson Associates, estimated fixed-income, currencies and commodities employees’ year-end pay will fall 15% from last year. “People are going to be frustrated,” said Mr. Johnson, adding that “it’s going to be tough to find much greener pastures somewhere else.”
Overall, bonuses on fixed-income, currency, and commodity trading desks will likely be down 10 percent to 15 percent, said Alan Johnson, head of the Wall Street compensation consulting firm Johnson Associates. It could be the third or fourth year in a row in which some Wall Street bond traders get $0 bonus checks, he added.
Just two months ago Johnson had predicted bonus increases of 5 percent to 15 percent for fixed-income traders, but since then the Federal Reserve has decided not to start winding down its bond buying stimulus program, and gridlock has hobbled Washington. Both have alarmed investors who are unsure of where markets are heading, and are reluctant to make huge bets that could quickly turn against them.
A mid-level Wall Street trader might earn $500,000. Before the crisis, total compensation might have been closer to $800,000, said Johnson of the Wall Street compensation consulting firm Johnson Associates.
As reported yesterday by the Wall Street Journal, Daniel P. Stipano, deputy chief counsel, Office of the Comptroller of the Currency, called on banks to tie compensation to compliance, and said, “If you don’t do that, you’re really just engaging in empty talk.” The reaction from some in the industry: where have you been for the past five years?……
“I think the big story may be that a senior regulator is clueless about how his own government is regulating pay,” said Alan Johnson, a compensation consultant for financial services firm Johnson Associates. “The banks have embedded this in their pay systems as best they can, they spend a huge amount of money monitoring this kind of stuff. Compliance, following the rules, taking too much risk–they take those kinds of things extraordinarily seriously.” Indeed, there’s evidence pay is already reflecting compliance, at least on the downside. In June, a report by the consulting firm Equilar and the Financial Times found bank CEO pay down about 10% in 2012 on investor and regulatory pressure. The lowest paid CEO in the study was Barclays CEO Antony Jenkins, whose predecessor, Bob Diamond, exited in the wake of the Libor scandal; Jenkins himself took no bonus “because of various scandals, including Libor,” the FT said. Earlier this year, Jamie Dimon saw bonus cut in half and faced a boardroom battle over splitting the CEO and chairman roles in the wake of compliance problems including the London Whale trading scandal.
In August, Wall Street Journal financial editor Francesco Guerrera wrote of a new “era of regulation” in banking. The open question seems not to be whether banks are adopting executive comp programs tied to compliance, but what unintended consequences might follow that focus on compliance.
Wall Street is highly profitable again, but cost-cutting and regulatory pressures should keep compensation totals from increasing at near the same rate. We talked to Alan Johnson, founder of compensation-consulting firm Johnson Associates Inc., to discuss the presumed winners and losers of 2013 and the potential impact of EU bonus on both sides of the pond.
What do you expect from Wall Street bonuses this year?
I think certainly all indications are this is a positive year. Wall Street bonuses will likely be up 5-10% on the year, with the news being more positive for U.S. bankers due to geography and their recent wins. It’s an unusual year though, as everyone seems to be headed in same direction. Asset managers, banks, insurance companies – they’ll all see around the same rise.
Any occupations that you expect to be better compensated than others?
I think some of the trading businesses in equities and fixed income will see a nice rise in bonuses. Investment bankers will do worse due to volumes not fully coming back.
Consultant relations professionals are resisting calls to make their compensation more long term to align it with the duration of their clients’ investments, recruiters say, following recent European proposals along those lines that would have affected U.S. managers with E.U. arms.
In July, the European Union rejected legislation that would have capped asset managers’ bonuses and forced compensation to be deferred over longer periods of time. The proposed restrictions came on the coattails of a successful law imposing similar restrictions on bankers…..
Alan Johnson, managing director at compensation-consulting firm Johnson Associates, says he works with clients who would like to switch their consultant relations staff over to a commission structure.
But Johnson discourages that idea, saying that consultant relations professionals should be encouraged to take their time developing relationships and meeting the needs of the consultants, not the other way around. “If you motivate people to push what’s hot at the moment, you’re not going to have anything in the future,” says Johnson. “It’s a long term relationship, and the impact [consultant relations] have is indirect.”
Just as sales professionals have not responded well to attempts to switch their compensation to a bonus structure, as reported, consultant relations professionals do not usually like a commission structure. “It takes years to foster relationships,” says Johnson. Paying consultant relations a more black-and-white commission basis could make it difficult for them to earn commission in the earlier years of their career, as well as in lean sales periods.
While deferred commission payments may work for sales people in order to encourage better retention, it’s not a necessary hook for consultant relations staff, according to Johnson. Consultant relations professionals generally have better retention as their jobs are seen as less stressful and more long-term given that they involve developing relationships in slow moving bureaucracies. Nevertheless, not everything about a consultant relations pro’s duties are laid back. “[Consultant relations] a hard job in an industry where people want to get things done quickly,” he says.
The discrepancies are the latest wrinkle in the final writing of the Volcker rule, which will force banks to scale back bets they make using their own capital. Banks know the broad outlines of the rule, but regulators may not issue a final version until later this year, leaving banks little time as they scramble to comply by July 2014.
The employee-participation provision—designed to avoid a situation where banks, in the event of a crisis, rush to rescue heavily employee-invested funds, said a person involved in the rule-making process—is causing particular consternation….
Alan Johnson, managing director of New York-based compensation-consulting firm Johnson Associates, said he has worked with banking clients frustrated with the lack of guidance on the employee-participation portion of the rule. “This is just one more thing where the rules weren’t quite clear,” he said. “The skeptics said it would take a long time for the rules to come out, and I guess they were right.”
The fortunes of large financial services companies have improved dramatically from the dark days of the recession, but paychecks for the leaders of those companies still aren’t what they used to be.
Compensation at broker-dealers and asset-management firms generally has increased along with the recovering financial markets during the past two years, but it remains substantially below pre-crisis levels, consultants said….
“There’s usually a premium to work on Wall Street, but it’s shrunk,” said Alan Johnson, managing director of compensation consultant Johnson Associates Inc.
He characterized last year as “so-so” overall for financial services executives and suggested that the fallout from the financial crisis continues to suppress executive-pay levels.
“Some people still believe that executives in this industry should make very little,” Mr. Johnson said