SOURCE: Johnson Associates

November 09, 2015 09:03 ET

Wall Street Year-End Incentive Awards to Be Modestly Lower in 2015, Johnson Associates Analysis Finds

Closely-Watched Study Shows Biggest Declines Expected for Fixed Income and Hedge Fund Professionals, Investment Banking Underwriters

NEW YORK, NY--(Marketwired - Nov 9, 2015) -  Year-end incentive payments on Wall Street are expected to be modestly lower compared with last year, marking an end to three consecutive years of larger incentive payouts, according to an annual compensation analysis released today by Johnson Associates, Inc., a New York-based compensation consulting firm. The closely-watched study notes payments will vary by business with fixed income, hedge fund and investment banking underwriting professionals expected to see the biggest declines. Investment banking M&A advisors and private equity professionals are expected to receive the largest increases. 

The Johnson Associates third quarter compensation analysis shows that overall year-end incentives, which include cash bonuses and equity awards, will be lower by 5 to 10% this year compared to last year. The last time the overall industry experienced smaller year-end bonuses was in 2011 when payments fell by more than 20%.

"Given the up and down year Wall Street is experiencing this year, smaller year-end incentives across the industry should come as no surprise," said Alan Johnson, managing director of Johnson Associates and one of the nation's foremost authorities on Wall Street compensation. "The asset management sector in particular is facing strong headwinds, and after several robust years, experienced a change in fortune. Investment and commercial banks are struggling through another uneven year with overall year-end incentives to be mostly down with a few exceptions."

Fixed income traders will be the hardest hit, with their year-end incentives expected to decline by as much as 20%. Hedge fund and investment banking underwriting professionals will see their year-end bonuses trimmed by about 15% while payments for senior management and staff will decline by 10%. Investment banking M&A advisors can expect to see the largest increase -- a jump of 15 to 20% over last year's payouts. Payments for private equity and equities professionals will increase by as much as 10%. Incentives for the rest of the financial services industry, including high net worth, asset management and retail banking will be flat or slightly lower or higher than last year.

   
Business Area Percent Change from 2014
Fixed Income Minus 10% to Minus 20%
Hedge Funds Minus 5% to Minus 15+%
Investment Banking
(Underwriting)
Minus 5% to Minus 15%
Senior Management Minus 5% to Minus10%
Staff Positions Minus 5% to Minus10%
Asset Management
(Independent & Captive)
Minus 5%
High Net Worth Minus 5% to 0%
Commercial/Retail Banking 0% to +5%
Equities 0% to +10%
Private Equity +5% to +10%
Investment Banking
(Advisory)
+15% to +20%
   

Johnson Associates regularly monitors compensation trends among a wide range of commercial and investment banks, asset management firms, and other financial services companies. Its quarterly compensation analysis is based on the firm's ongoing monitoring of the financial services industry and public data from seven of the nation's largest investment and commercial banks and ten of the largest asset management firms.

Outlook for 2016
"Unfortunately, looking ahead to 2016, we expect to see challenges across many sectors of the financial services industry which will lead to moderately down, or perhaps flat year-over-year compensation. Slowing global economies, interest rate uncertainty, and capital constraints continue to negatively impact growth, and business and investment returns. Headcount reductions and cost controls will put added pressure on compensation pools forcing firms to take a more serious look at individual performance and differentiation. In this difficult environment, the paradigm shift is expected to continue toward non-bank compensation and careers. Firms will continue to focus on expenses, with need for fundamental changes in cost structures at banks and increasingly at many of the asset management firms," concluded Johnson.

ABOUT JOHNSON ASSOCIATES
Johnson Associates is a boutique compensation consulting firm specializing in the design of annual and long-term incentive plans and establishing appropriate market pay levels. The firm is well-known for providing candid advice and for its expertise and in-depth knowledge of the financial services industry, including major investment and commercial banks, asset management firms, hedge funds and other alternative investments, insurance companies, and brokerages. For more information, visit www.jaiconsulting.com

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