At year-end 2011, U.S. financial services professionals can expect to receive sharply lower incentive payouts compared to 2010, according to an annual compensation analysis by Johnson Associates Inc., a compensation consulting firm. Year-end incentives declined sharply in 2008 during the economic crisis but rebounded the next two years.
The analysis is based on the firm’s monitoring of the financial services industry and public data from eight of the nation’s largest investment and commercial banks and 10 of the largest asset management firms.
“This year started with great promise for a banner year on Wall Street, but hopes for larger bonuses faded over the summer and continue to dim as we approach year end,” said Alan Johnson, managing director of Johnson Associates. “The lack of economic recovery, combined with ongoing uncertainty in the world markets, and global and regional regulation are driving most financial services firms to significantly reduce the size of their bonus pools. As a result, most but not all professionals will receive smaller payouts” at the end of 2011.
The firm's analysis shows that year-end incentives, which include cash bonuses and equity awards, will decline by an average 20 to 30 percent for financial services professionals in 2011 compared to 2010. Fixed income traders will be the hardest hit, with their year-end incentives expected to decline by as much as 45 percent. Equities traders and senior management will see their year-end bonuses trimmed by up to 30 percent while year-end payments for investment bankers will fall by 20 percent.
Incentives for the rest of the financial services industry, including asset management, high net worth, retail banking and prime brokerage will be flat or slightly lower or higher than at the end of 2010.
Outlook for 2012
“Looking ahead to 2012, we expect to see a modest recovery in many segments of the financial services industry. Barring further economic weakness or major collapses among banks or foreign countries, bonuses for investment and commercial bankers and those in asset and wealth management and alternatives could jump by 15 percent or more next year,” concluded Johnson. “Additionally, firms will continue to reduce headcount in the United States but will add to staff in emerging markets where many companies are expanding their business operations.”
As previously reported…
Across all industries, North American companies’ average projected bonus funding for 2011 performance is 101 percent of target, marking the second consecutive year that companies are able to fully fund their annual bonuses for workers, according to a report from consultancy Towers Watson. Companies funded annual bonuses in 2010 at 111 percent of target, the firm found. (See the SHRM Online article "Moderate Pay Raises Foreseen, with Fully Funded Bonuses.")
According to a survey by pay consultancy Robert Half, 30 percent of U.S. executives whose companies awarded bonuses at the end of 2010 said they plan to give higher bonuses in 2011. Only 14 percent of those interviewed expected smaller bonuses than in 2010. (See the SHRM Online article "Most Plan to Award Same or Higher Bonuses for 2011.")
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Most Plan to Award Same or Higher Bonuses for 2011, SHRM Online Compensation Discipline, November 2011
Viewpoint: Grinch-like Advice—Incentive Plans Instead of Holiday Bonuses, SHRM Online Compensation Discipline, November 2011
Moderate Pay Raises Foreseen, with Fully Funded Bonuses, SHRM Online Compensation Discipline, August 2011
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