Wall St bankers in line for poor 2012 bonuses

Pay expectations are being driven down on Wall Street, with a fifth of banking employees expected to get no bonus at all this year

PUBLISHED : Wednesday, 14 November, 2012, 12:00am
UPDATED : Wednesday, 14 November, 2012, 2:58am

Wall Street banks are deflating their employees' pay expectations to avoid a replay of last year when cutbacks on bonuses and increased deferrals surprised bankers and traders.

Almost 20 per cent of employees will not get year-end bonuses, according to Options Group, an executive-search company that advises banks on pay. Those collecting awards may see payouts unchanged from last year or boosted by as much as 10 per cent, compensation consultant Johnson Associates estimates. Decisions are being made as banks cut costs and firms including UBS and Nomura fire investment-bank staff.

Some employees were surprised as companies chopped average 2011 bonuses by as much as 30 per cent and capped how much could be paid in cash. That experience, along with public statements from top executives, low trading volumes in the first half and a dearth of hiring, had employees bracing for another lacklustre year, consultants and recruiters said.

"A lot of senior managers won't have to pay up because they're saying, 'Where are these guys going to go?'" said Michael Karp, chief executive of New York-based Options Group.

"We're in an environment where a lot of people are just happy to have a job. Expectations have been managed so low that people will be happy with what they get."

More modest expectations reflected a new reality as total pay was about half what it was in 2007, Options Group said in a report last month.

Firms are struggling to earn the returns shareholders demand amid higher capital requirements, a proprietary-trading ban and lower deal and trading volumes. Of the 10 largest global capital-markets firms, the only one trading at more than book value is UBS, which eclipsed that mark after pledging last month to shrink its investment bank by half.

Goldman Sachs and the investment-bank divisions of Morgan Stanley, JPMorgan Chase, UBS, Credit Suisse and Deutsche Bank set aside a total of US$37.9 billion for pay in the first nine months, down 7 per cent from a year earlier. These firms have cut more than 9,000 jobs in the past year.

The compensation figures include money allocated for paying salaries and bonuses as well as costs from deferred bonuses in previous years coming due. Wall Street firms typically reserve a portion of revenue throughout the year for employees and sometimes make adjustments in the fourth quarter, such as when New York-based Goldman Sachs reported negative compensation costs by cutting its accumulated pay pool in the last three months of 2009.

Total pay for investment bankers and traders industrywide probably will fall 8 per cent, according to the Options Group report. Traders in fixed-income businesses can expect to see a 6 per cent increase in compensation, while pay may decline 17 per cent in equities and 13 per cent in investment banking, the report shows.