New projections call for moderate 2012 bonus increases across all financial services sectors, with fixed income showing some of the largest potential incentive-pay gains—as much as 25 percent in some cases.
Compensation consultant Alan Johnson of Johnson Associates says incentives are still well below the highs of 2007. Moreover, he says that “things started to get worse” while his firm worked on the estimates during the first five months of this year.
“Prospects for the banks became shakier in the last 10 days,” he told eFinancialCareers, given such factors as the Greek economic crisis. Still, while things are a bit “cloudier” than they were, he says, he stands by the following projections for 2012 incentive pay as compared to last year’s bonuses.
They include all of the following expectations for the year:
- Fixed income (investment and commercial banks): 15 percent to 25 percent increases. “Things were terrible for fixed in 2011 and [the category] has done much better in 2012,” says Johnson. His estimates point to incentive pay variation due to the breadth of product, with strong results in rate products, as well as tighter credit spreads and improving sentiment as well as stability.
- Equities (investment and commercial banks/excluding prime brokerage): 10 percent to 15 percent increases. Johnson’s “cautious but stabilizing outlook” is due to an increase in global equity prices, subdued market volumes and lower volatility.
- Investment banking (investment and commercial banks): Declines of up to 5 percent to increases of 5 percent. Whereas industry-wide M&A and equity underwriting activity remains slow, according to Johnson, there have been “sequential improvements,” and debt underwriting has improved significantly.
- High net worth: 5 percent to 10 percent increases. Market appreciation has increased fees in this category, where assets are generally more stable.
- Asset management (independent and captive): 5 percent to 10 percent increases as market uncertainty continues to create a difficult asset gathering environment and assets under management improve sequentially on market appreciation.
- Hedge funds (independent and captive): 5 percent to 15 percent increases on increasing assets and improved performance coming off of a challenging 2011.
- Private equity (independent and captive): 0 percent to 5 percent increases due to a challenging market.
- Commercial banking: 0 percent to 10 percent increases due to decreasing provisions for credit losses and moderate loan and deposit growth.
- Prime brokerage: 5 percent to 10 percent increases due to solid client balances.
Johnson’s report also calls for:
- Additional layoffs as firms reduce scale.
- Low interest rates hindering fees, with varied performance by mix of business.
- Fixed income trading continuing to be a significant driver of results.
- Proxy executive compensation being constrained by public regulatory pressures and public scrutiny for many banks, despite improving results.
Things are “still fragile,” says Johnson, despite some encouraging indicators.