Wall Street compensation predictions for 2013 and beyond

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Compensation for investment bankers will rise in 2013 – or maybe it will fall. It really depends on who you’re listening to.

A new report from financial recruiting firm Options Group predicts that Wall Street compensation will increase roughly 4% for the year. Investment bankers should be amongst the winners with a 6% bump in compensation on the back of strong performances in M&A and with initial public offerings, the firm told the Wall Street Journal.

Not all agree with that final sentiment however. Just last week, compensation analyst Johnson Associates reported that M&A bankers will see a 5% drop in bonuses due to the sluggish mergers market. So who’s right? As strange as it sounds, they both may be correct.

The Options Group report takes into account only the top 25% of M&A bankers, excluding the 1%. Johnson Associates, meanwhile, takes a more holistic view. The divergent findings make more sense when considering the methodologies.

The M&A market in 2013 has been a rollercoaster marked by huge wins (see the Verizon and Dell deals) and long stretches of sluggish activity. Top M&A bankers who helped negotiate some of this year’s bigger deals are likely having a banner 2013. Smaller firms and lesser-known names are likely struggling compared to a year ago.

Both firms agree on one thing though. Fixed income traders are going to get crushed while money managers will finish the year smelling like roses. Bond, currency and commodities traders are facing a 15% drop; asset and wealth managers should see an equal-sized gain in compensation.

2014 Predictions

Why stop at just this year? During yesterday’s annual presentation, Alan Johnson, managing director of Johnson Associates, laid out a rather optimistic future for Wall Street.

Unsurprisingly, compensation for asset and wealth managers should continue to rise on the back of a strong equities market. The firm forecasts a 10% to 15% jump for money managers in 2014.

The real eyebrow-raiser concerns investment and commercial banks. Johnson Associates, in an admittedly “fearless” prediction, forecasts a 15% rise in compensation for investment and commercial bankers. The drivers will be a stronger global economy, an improving fixed income market (could it really be worse?) and equities gains.

Other predictions for 2014 include a greater move to non-stock vehicles, such as cash, and the continued exodus of staff from expensive locales like New York, California and various cities in Europe.


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