The stock market has done well, employment is high and the economy looks strong. Despite the positives, Wall Street executives are worried.
Banks are hurting due to low interest rates, which eat into their profits. Weaker loan demand, lackluster trading, declines in investment banking and intense competition are cause for concern. Over 60,000 financial professionals have been downsized this year. Hedge funds have not been as hot as they were in the past. Mutual fund and asset management companies are feeling the squeeze from low-cost ETFs and index fund providers.
Automation, artificial intelligence and other technologies are displacing bank financial services employees. In cost-savings measures, companies are moving jobs to lower-cost cities in the United States and to other countries.
Wall Street CEOs are concerned over the impact of trade and tariff wars with China, the uncertainty surrounding Brexit, the rancor around impeachment hearings and the upcoming election.
These factors make it easy for Wall Street management to tap the breaks and hold back on bonuses and raises. It gives them a reasonable excuse to cut the bonus pool.
Bonuses across Wall Street are expected to fall. According to a report by well-known compensation consultant Johnson Associates Inc., equity traders will suffer the most with a decline of 15% compared to last year (which was also a down year) and fixed income and equity underwriters could find that they have a bonus that is 10% less than last year. Bond traders will be happier with only a 5% decrease in their bonus. To sum it up, “All signs are pointing to an overall disappointing and lackluster year on Wall Street,” said compensation consultant Alan Johnson.
This doesn’t just hurt the bankers, traders, brokers and other financial professionals. The bonus payment represents a significant part of the total compensation package for a Wall Street professional. The bonus can range from several thousand dollars to a multimillion-dollar package.
The money realized from the bonuses is then circulated back into the economy—particularly in New York and surrounding areas. The professionals purchase homes, expensive cars and clothing. They take exotic vacations and dine at fancy restaurants. Restaurants, real estate brokers and many other businesses benefit from the high-end bankers who are flush with cash. If they receive a lower amount, there is less money to spend and it will harm the businesses that rely upon the bankers’ extravagance.
The drop in bonus amounts will be the second year in a row. The average bonus paid to New York City-based financial professionals was about $153,700 in 2018. This represented a drop of 17% from the previous year. The decline will also hurt New York City as the government will collect less taxes on the lower bonuses. New York State Comptroller Thomas DiNapoli said, “Love it or hate it, securities industry bonuses are a major part of compensation, and a source of city and state taxes. When bonuses decline, the shortfall can impact city and state revenue and limit funding available for government programs.”
The average Wall Street professional earned over $422,000 in 2017 (the latest available data). This figure is roughly five times greater than what the average private-sector employee earns. In 2018, bonuses alone were twice the amount of the average salary of New York City’s workforce.