It certainly has been a chaotic year for finance professionals, many of whom have been forced to work from home or, for some, work from the Hamptons. As early as May, we outlined how Wall Street bonuses for 2020 were expected to slump. With 49 days left in the year, New York consulting firm Johnson Associates confirmed in a new report that year-end bonus payments for Wall Street would tumble.
Johnson Associates said third-quarter compensation analysis shows overall year-end incentives, which include cash bonuses and equity awards, will decline on the year, marking the second consecutive year of smaller awards.
Retail and commercial bankers are expected to be the hardest hit, with year-end incentive payments set to plunge by at least 25% to 30% compared with 2019 figures. Investment banking advisors were the next hardest hit, with their bonuses expected to decline by around 15% to 20% compared with last year. Bonuses for asset management, hedge funds, and private equity folks are expected to be slightly down, in the range between 5% to 10%.
“The pandemic is wreaking havoc on many parts of the U.S. economy this year, and the financial services industry is no exception,” said Alan Johnson, managing director of Johnson Associates.
However, while retail and commercial bankers and asset management firms are expected to see year-end compensation incentive declines, fixed income and equities traders could see large bonuses, anywhere from 20% to +45% over the previous year.
Johnson expects some stabilization in 2021. He warns early projections indicate the pandemic will continue hurt the financial services sector.
“As compared to many sectors of the economy, select areas of financial services have rebounded. Unfortunately, as we look to 2021, even with an optimistic vaccine path, the pandemic will continue to negatively influence businesses, but perhaps to a lesser degree than in 2020. Headcount reductions will continue in the first half as companies transform and adapt. For 2021, we expect some stabilization with early projections for modest salary increases, and flat to slightly increased incentives,” he said.
A similar trend is expected to play out in Europe, where investment banks are so deeply embroiled in reviving their failing businesses in an age of negative interest rates and unlimited quantitative easing that executive are expected to receive lower bonuses this year.