Wall Street compensation guru Alan Johnson projects significantly larger bonuses for senior managers (excluding proxy executives), staff professionals, and equities and fixed income professionals. But professionals in many other areas of investment banking will see equally large decreases.
Johnson, president of the noted compensation consulting firm Johnson Associates, says management and staff bonuses are rebounding somewhat from depressed 2008 levels, thanks to rising overall bottom lines. Helping fuel the uptick are improved trading results, smaller asset write-downs and access to funding at reasonable costs now that federal bailout programs are in full operation.
Still, legislative action and firms' ability to repay TARP funding will heavily influence individual company bonus payouts, Johnson's survey notes. While in some cases any bonus would be more than last year's non-existent amounts, proxy executives at firms that took TARP money and can't pay it back could face empty bonus envelopes this year.
In the Trenches
Staff position bonuses, which move in line with the entire firm, will see incentive funding increases of 20 to 25 percent, with differences by function, Johnson predicts. The industry's newfound focus on risk is putting less pressure on pay there than in areas that have been targets for cuts, such as IT and operations.
With write downs significantly reduced and strong performances in interest rate, currencies and commodities, Johnson sees bonus increases of 20 percent for plain-vanilla fixed income professionals, and 30 percent for those in fixed-income derivatives.
In equities, market volatility, strong customer flows and solid derivatives results will lead to 20 percent increases for plain vanilla traders, and 30 percent for derivatives traders, Johnson says.
The Down Side
Everyone else will see bonuses going down. Bonuses for retail and commercial banking professionals will hold steady, ranging from -5 percent to 5 percent. Hedge fund and private equity fund professionals' incentives will fall 20 to 30 percent from 2008 levels.
Asset management will fare just as poorly, with bonus levels dropping 25 percent for fixed income and high-net-worth managers, and a whopping 35 percent for equities asset managers thanks to market depreciation, asset outflows and lower fee income.
The bonus situation could be nearly as bleak for prime brokerage professionals, with reduced risk tolerance, fewer funds and lower client balances reducing bonuses by 25 percent to 30 percent over 2008, Johnson says.