When it comes to concerns about their professional future, few things faze Wall Streeters: mass layoffs - no big deal, someone else will hire; empty steakhouses - that's ok, Hustler Club is packed (and expense accounts are accepted just fine). But lower compensation and all hell breaks loose. Which is why quite a few hearts must have been pounding today when New York state Comptroller Thomas DiNapoli released his annual Wall Street compensation report in which we revealed that average Wall Street bonuses for 2015 will drop by a quite substantial 9% to "only" $146,200, the second consecutive year of declines, and the lowest since 2012 when average bonuses were $142,860.
According to DiNapoli, "Wall Street bonuses and profits fell in 2015, reflecting a challenging year in the financial markets. While the cost of legal settlements appears to be easing, ongoing weaknesses in the global economy and market volatility may dampen profits in 2016." This is bad news for New York because "both the state and city budgets depend heavily on the securities industry and lower profits could mean fewer industry jobs and less tax revenue.
The total bonus pool for securities industry employees declined by 6 percent to $25 billion in 2015 during the traditional December-March bonus season. The Comptroller’s estimate includes cash bonuses for the current year and bonuses deferred from prior years that have been cashed in.
Curiously, DiNapoli said that while profits in the securities industry declined for the third straight year, reaching their lowest level since 2011, industrywide employment increased 2.7% in 2015, averaging 172,400 jobs for the year. As a result, the average bonus declined by 9 percent in New York City to $146,200 in 2015 and the decline in the average bonus was larger than the decline in the total bonus pool because the pool was shared among a larger number of employees than last year. As a result, the average bonus in 2015 was slightly larger than the average of the seven prior years (adjusted for inflation).
However, anyone seeking a big pick up in wages will have to look elsewhere: ideally minimum wage waiters, bartenders and retail workers who now make up the bulk of Obama's "recovery."
One also wonders how long before Wall Street switches from bonus cuts to even more wholesale terminations. Indeed, as DiNapoli notes, "it remains to be seen whether the recent job gains can be sustained in 2016 given the weakness in the global economy and financial markets, and increased provisions for bad loans related to the energy sector. A number of large financial firms have already announced plans to reduce costs to improve profitability, which could lead to fewer employees in New York City and smaller bonuses next year."
And that is what the recovery has to look forward to: not only fewer of the best paid employees in the US, but another year of smaller bonuses. At least the price of oil has soared enough to where that quarter of a million of laid off O&G workers will be promptly rehired, or else very soon the US will run out of waiters.
Finally, don't cry for Wall Street: like every other utility, increasingly more of the comp is paid in the form of base pay and less in the bonus: according to DiNapoli the average salary (including bonuses) for securities industry employees in New York City rose 14% in 2014 to $404,800, setting a new record (data are not yet available for 2015). This was nearly six times higher than salaries in the rest of the City’s private sector ($72,300).
Some other observations from the report:
- Although the securities industry is smaller, it is still one of New York City’s most powerful economic engines. The industry accounted for 22 percent of all private sector wages paid in New York City in 2014 even though it accounted for less than 5 percent of the City’s private sector jobs. An estimated 1 in 9 jobs in the city are either directly or indirectly associated with the securities industry;
- Unlike in prior economic recoveries, the securities industry has not been a driving force in the current jobs recovery in New York City. So far, the industry has accounted for less than 1 percent of the private sector jobs added, compared with 10 percent during the two prior recoveries;
- Securities-related activities are a large contributor to state and city tax revenues. DiNapoli estimates that securities-related activities accounted for 7.5 percent ($3.8 billion) of all city tax revenue in city fiscal year 2015 and 17.5 percent ($12.5 billion) of state tax collections in State Fiscal Year (SFY) 2014-15. The state also expects to receive more than $8.5 billion in settlement payments from financial firms during SFY 2014-15 and SFY 2015-16; and
Finally, this is the history of average Wall Street bonuses over the years: