Expectations remain relatively high on Wall Street, especially among hedge fund employees, that this year's bonus will either outperform or match what they received last year.
A new survey of financial markets professionals by eFinancialCareers has found that more than six in 10 (62 percent) expect their bonus this year will be higher or the same in comparison to the bonus they earned in 2010.
The current level of expectation, while still high, actually represents a down tick from a year ago, when 71 percent of survey respondents believed their annual bonus would increase or remain level.
<Lower expectations from large bank employees
In part, the falloff is due to lower expectations from large bank employees. For those respondents working in commercial or bulge-bracket banks, approximately 56 percent expect their bonus to go up or remain the same, while 68 percent of hedge fund, boutique banks and professional servcices employees believed they would receive higher or the same bonus as last year.
Personal performance (45 percent) and firm performance (22 percent) appear to be the primary reasons driving anticipated year-end bonus increases. Among the 30 percent of respondents who report expecting decreased bonuses at year's end (a figure up sharply from last year's 20 percent who expected smaller bonuses), firm performance (40 percent) and market conditions (35 percent) stand out as the most cited primary causes.
Managing compensation expectations more an art than science
"If managing financial markets is Wall Street science, then managing professionals' expectations on compensation is one of Wall Street's premier arts," said Constance Melrose, Managing Director, eFinancialCareers North America. "Even amid an atmosphere of slower recruitment activity and targeted layoffs, Wall Street will continue to be a pay-for-performance culture. Firms need to be resolute in taking care of their best in class employees, as they will always have opportunities to make a career move if they feel disenchanted."
In a television interview with Thomson Reuters: Reuters Insider, Ms. Melrose discussed the recent Wall Street protesters and the impact of Dodd-Frank.
According to the survey, the Dodd-Frank Act continues to remain rooted in the minds of financial markets professionals. Asked about the recent layoffs on Wall Street and whether Dodd-Frank's weighting of compensation toward base salary rather than bonuses played a role, a majority (52 percent) agree the Act has contributed to the downsizing.
Asked to make a prediction about bonus sizes over the next three years, 46 percent say they expect bonuses to decrease in the future, up from 30 percent a year ago. On the flip side, 20 percent say they expect bonuses to increase between now and 2014, a decline from 34 percent last year. Market conditions dominated the list of factors pressuring compensation, followed by the Dodd-Frank Act and voluntary restraint by firms.
One response has remained almost perfectly stable year to year: the majority of Wall Street professionals (59 percent in 2011, versus 61 percent in 2010) tell us that money, while important, isn't the most important reason why they work in the financial markets. The remainder (39 percent, versus 37 percent last year) say compensation is the most important reason to work on Wall Street. Again, a mere two percent indicate that compensation is not important at all.
About the survey
The 2011 eFinancialCareers Bonus Expectations Survey took place in the United States between September 20 and October 3, 2011 with 1,098 currently employed financial markets professionals. Of those respondents, 53 percent work in the front office, 25 percent in the middle office and 22 percent in the back office.