A difficult first quarter for investment banks was obviously going to have a negative effect on compensation, but the results may be worse than some would have believed. A new study suggests it's not just that pay is declining as a result of lower revenues - but that pay is falling as a proportion of revenues too.
Compensation specialist Johnson Associates compiled a pay report based on conversations with seven investment and commercial banks. For Q1, the report predicts that compensation and benefits as a percentage of net revenue will drop from just over 40% to roughly 37%.
So the pie got smaller during the first quarter, but so did the size of the slice. And while CEOs projected confidence moving forward during the latest round of earnings calls, an analyst at Citi said that banks’ first quarter profits may be the best they see all year.
Incentivized pay could fall by as much as 20% for some traders and investment bankers. Johnson predicts that bonuses for fixed income traders will drop by 10%-15% in 2019, while equities traders could see as much as a 20% drop. Incentivized pay for underwriters may also dip by 15%-20%, though those that focus on debt funding have significantly outperformed equity underwriters so far in 2019, according to the report.
Johnson Associates also said that technology, risk and wealth management hiring has picked up but headcount has remained relatively flat due to reductions in operations and middle office staff.
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