The average Wall Street bonus will decline by 20% to 30% this year, according to a closely watched compensation report, as banks cut costs and lay off workers in a weak environment for trading and deal-making.
Employees in the bond-trading business will face the sharpest pay cuts, with bonuses down 35% to 45% from a year earlier, according to a projection by New York compensation consulting firm Johnson Associates.
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Equity traders and senior executives will also have their bonuses cut by up to 30%, the firm said. Investment banker bonuses will decline up to 20%.
"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," said Alan Johnson, managing director of Johnson Associates. "As a result, most, but not all, professionals will receive smaller payouts this year."
Traders, bankers and top executives typically receive base salaries of $100,000 to $1 million, but most of their compensation comes as bonuses after year-end, based on the performance of the individual and the broader company.
The expected decline for 2011 comes after two years of record payouts for Wall Street workers, as markets staged a rebound from the depths of the financial crisis. This year, though, big trading and investment banking houses have been reporting increasingly bleak earnings and have begun laying off thousands of employees.
Last month, Goldman Sachs Group Inc (NYSE:GS) reported the second quarterly loss in its history as a public company, while Morgan Stanley (NYSE:MS) and the investment bank of JPMorgan Chase & Co (NYSE:JPM) posted sharp declines in third-quarter operating earnings before an unusual accounting gain.
In the first nine months of this year, Goldman, Morgan Stanley and JPMorgan's investment bank set aside $30.4 billion for compensation and benefits, down 7.8% from a year earlier.
The Johnson Associates report suggests that pay will come down by a much greater percentage. The only two business lines in the financial industry that may see slightly higher pay are retail banking and divisions that deal with high net worth customers, the analysis said.