Early Read on 2010 Bonus Pay: Fixed-Income, M&A to Lag Broad Rally

Sell-side bonuses are on track to post broad gains based on 2010's first-quarter results, except for two key categories of professionals: fixed-income traders and M&A bankers. Meanwhile, average payouts for buy-side employees are projected to recoup last year's decline.

Those are key takeaways from the latest quarterly forecast of Johnson Associates, a Wall Street compensation consulting firm.

Along with pay, financial institutions are ramping up hiring. As that continues, firms will have a tougher time retaining employees than in 2008 or 2009. Johnson labels the incipient shift, "pent-up turnover."

First Quarter's Fixed-Income Strength Will Moderate

After triggering the financial crisis in 2007 and 2008, banks' fixed-income activities roared back to life during 2009 thanks to massive government spending to restore liquidity and prop up the industry. The industry-wide recovery is sustainable but the degree of fixed-income strength seen in this year's first quarter may not be, according to Johnson. The consultant projects full-year incentives for fixed-income desks at investment and commercial banks flat to down 10 percent compared with 2009.

For M&A advisory, continued slow deal activity leads Johnson to project year-end payouts flat to up 5 percent from 2009. Underwriting is doing better, with payouts projected up 5 - 10 percent versus last year.

Bonuses for staff positions and senior management excluding proxy executives (the handful of corporate leaders whose pay is disclosed in SEC filings) are projected to gain 10 - 15 percent over last year.

Buy Side Pay Seen Climbing Across All Segments

On the buy side, where the average bonus in 2009 extended 2008's 25 percent plunge, Johnson projects incentive pay rising 15 - 20 percent across the board. That encompasses asset management, high net worth, hedge funds and private equity segments.

Johnson's current estimates assume a "small/moderate" amount of contagon from the Greek debt crisis. Final bonus levels are sensitive to the pace of economic recovery as well as future legislation and regulatory changes. The consultant also notes that "heavy deferral rates" remain the market norm, and an industry-wide trend to hike base salaries while trimming cash bonuses clouds pay comparisons from year to year.