According to predictions by compensation consulting firm Johnson Associates, due to the continued downturn in the market, the bonuses of American investment bankers providing advice on company transactions are expected to decrease by 20% to 25% upon completion of the deals.
The report suggests that this bleak bonus outlook will affect investment bankers in both debt and equity underwriting sectors, potentially stabilizing the bonus pools in these areas or at most seeing a 10% decrease.
Wall Street executives have mentioned that a series of initial public offering (IPO) activities indicate that capital market activities may rebound after several months of downturn, signaling a positive sign. However, despite an increase in IPO activities, top bankers remain cautious. They believe it is too early to declare a sustained recovery and highlight a range of risks facing the economy, including interest rates, inflation, and geopolitical tensions. These factors could lead to market instability, affecting investor confidence and thereby limiting sustainable economic growth as well as the development of the industry.
Johnson Associates states that big banks' underwriting businesses are flourishing and showing strong momentum in assisting companies with stock and bond issuance. In contrast, the consulting sector is unlikely to recover before 2024, which will limit incentive compensation for employees in the consulting department. As for specific bonuses, equity traders' bonuses are expected to slide by 5% to 10%, while bond traders' bonuses may rise or fall by 5%.
The level of bonuses on Wall Street could vary significantly. A report released by New York State Comptroller Thomas DiNapoli in March shows a general downward trend in bonus income for bank employees. Specifically, the average bonus for employees in the New York area securities industry reached a record $240,400 in 2021. However, the average bonus level decreased by 26% to about $176,700 in 2022.
Johnson Associates' predictions also highlight the contrast in compensation between large and small banks. The study indicates that bonuses for retail and commercial bankers at large global banks might increase by 10%-20%, while incentive compensation for regional banks is expected to decrease by 10%-20%.
