Wall Street is highly profitable again, but cost-cutting and regulatory pressures should keep compensation totals from increasing at near the same rate. We talked to Alan Johnson, founder of compensation-consulting firm Johnson Associates Inc., to discuss the presumed winners and losers of 2013 and the potential impact of EU bonus on both sides of the pond.
What do you expect from Wall Street bonuses this year?
I think certainly all indications are this is a positive year. Wall Street bonuses will likely be up 5-10% on the year, with the news being more positive for U.S. bankers due to geography and their recent wins. It’s an unusual year though, as everyone seems to be headed in same direction. Asset managers, banks, insurance companies – they’ll all see around the same rise.
Any occupations that you expect to be better compensated than others?
I think some of the trading businesses in equities and fixed income will see a nice rise in bonuses. Investment bankers will do worse due to volumes not fully coming back.
What about CEO pay?
Probably about 10% over last year. What’s interesting is that if you look at current landscape, executives across other industries make much more money than big banks pay. I think that would surprise some people. Other industries have moved on from government regulations. Wall Street hasn’t.
I spoke to an American banker who interviewed at Citi. In his pitch, the hiring manager claimed EU bonus rules would hurt U.S. bankers working at European banks. Do you believe this is true?
They are going to be caught up in it, that’s for sure. But is it going to reduce their pay? That’s not really clear, but I don’t think so. If the market for someone’s services is a million dollars, that’s what firms will need to pay. But, as you mentioned, recruiters will likely use it against candidates. Uncertainty will be the worse part.
Will EU bonus caps work?
Listen: this had nothing to do with limiting risk. It’s all political. But my question is: When this doesn’t have an impact, and bankers are thumbing their nose at regulators, will a second round of regulations be in the works?
Do you expect banks to defer compensation more this year than in previous years?
No. It should be in line with last year.
Profits are up at most banks, but revenues are relatively flat. What does that mean for employees?
I think banks have made half of the increase in profitability by cutting costs. It doesn’t bode well for employment in the U.S. and other extensive locations. Firms will start moving more people to the developing world. It’s just too expensive in the U.S and certainly in New York City. Employment won’t be down, but it will be masked by the fact that they are moving jobs to India, for example, where employees make a third of what they do here. We’ll see slow employment growth, but not in high-cost areas.