Guess Which Financial Professionals are Expected to Get the Biggest Bonuses This Year?

If you picked fixed income professionals with investment banks and commercial banks, you were right. They are projected to have the highest incentive-based bonus packages this year, while other investment bankers could see incentive pay decline, according to new estimates released by Johnson Associates.

The compensation consulting firm said it broadly projects “flat to moderate increases in incentive compensation across financial services,” with the highest expectations—10 percent to 20 percent increases—seen for fixed income positions.

The next best projections are for those in the equities and prime brokerage area, where Johnson Associates predicts 5 percent to 15 percent increases this year for investment and commercial bankers. It says fixed income trading continues as a significant driver of firm results, and that whereas uncertainty impacted equities and fixed income trading in second quarter, there was “improvement over a challenging 2011.”

Where There's Weakness

The consultant also observes that advisory and equity underwriting activity remains weak, partially offset by improvement in debt underwriting, whereas elsewhere in consumer-driven business, increasing deposits and loan growth have aided retail and commercial banking results.

“For major investment and commercial banking firms, incentive compensation is generally projected to increase moderately, with significant variation by firm and business,” according to Johnson’s latest projections.

Key incentive drivers include economic recovery, the impact of regulation globally as well as regionally, and ongoing uncertainty in world markets, says the firm, noting that in particular:

• The LIBOR scandal, errant trades and other high profile errors and losses weigh on an already hampered investor confidence, and payouts of firms experiencing specific issues.
• The public spotlight on compensation will continue for the foreseeable future, says Johnson, and “proxy executive compensation will continue to be constrained by “public optics” for many banks, despite solid results.

Moreover, going forward, lower payout businesses like proprietary trading may be replaced with higher payout businesses such as investment banking, wealth management and brokerage, consistent with mandate to reduce risk and focus on customers, says the firm.

Specific estimates from the firm include the following incentive bonus changes this year versus 2011:

Senior firm management (excluding proxy executives): 0 percent to +10 percent

Staff positions: 0 percent to +5 percent

Investment banking (investment and commercial banks): -10 percent to +5 percent

Equities excluding prime brokerage (investment and commercial banks): +5 percent to +15 percent

Fixed income (investment and commercial banks): +10 percent to +20 percent

Prime brokerage: 0 percent to +10 percent

Asset management (independent and captive): 0 percent to +10 percent

High net worth: 0 percent to +5 percent

Hedge funds (independent and captive): 0 percent to +10 percent

Private equity (independent and captive): 0 percent to +5 percent

Commercial banking: 0 percent to +10 percent

Retail banking: 0 percent to +5 percent