Wall Street perks forecast to rise, study confirms

When it comes to compensation, it looks as if 2013 is going to be remembered as a pretty good year to have worked on Wall Street, unless you are a fixed-income trader.

Financial advisers, asset managers and underwriting investment bankers can expect their 2013 bonuses to rise as much as 15 percent, according to a closely watched compensation survey released Thursday. Overall, Wall Street employees can expect yearend bonuses to grow 5 to 10 percent on average, the second consecutive year of increases, according to the survey, produced by Johnson Associates.

Bonuses for bond traders, who had a terrible year because of interest rate instability, could drop by just as much or more.

The predictions reflect a new reality for Wall Street’s biggest banks, whose fixed-income revenue has plummeted amid a choppy bond market. Banks including Morgan Stanley have expanded their wealth-management divisions, which generate fees from the assets they handle, to balance the instability from fixed income.

“What’s interesting is, for decades almost every year the big Wall Street firms were the highest-paid firms in financial services,” said Alan Johnson, managing director of Johnson Associates. Now, however, the big asset managers are “on par” with what those big firms are making, he said.

Johnson Associates, based in New York, surveyed eight of the country’s largest investment and commercial banks, 10 of the largest asset-management firms and public data.

Bond traders received the largest increase in bonuses last year, but they declined in 2011, reflecting the sector’s volatility.

Some investment bankers will fare far better this year than they did last year, when bonuses fell by an average of 10 percent. While underwriting investment bankers will generally receive larger bonuses, investment bankers on the advisory side should expect drops of 5 to 10 percent.

Hedge fund and equities executives can expect bonus increases of 5 to 15 percent, according to the survey. Employees in firms’ private equity businesses can expect 5 to 10 percent increases.

About half of all the money Wall Street makes goes to paying employees, and year-end bonuses make up a large chunk of that amount. But firms set aside money all year for those payouts, and they have not been able to save quite as much this year. During the first nine months, big banks set aside $91.44 billion for 2013 bonuses, down from $92.49 billion in the period a year earlier, according to the survey.

Goldman Sachs employees should not be surprised that during the first three quarters, their firm set aside 5 percent less in yearend compensation than it did last year. Fixed income dragged Goldman’s profit down in the third quarter, a drop that was expected to pull employees’ yearend bonuses down with it. The company also had less revenue from lending and investing activities overall.

JPMorgan Chase’s compensation numbers are roughly flat so far this year. The bank has set aside $23 billion to pay for penalties related to various government investigations and other litigation costs. It is unclear how this reserve will affect bonuses.

“Firms have gotten better at managing people’s expectations,” Johnson said. “They talk about the results.” He added, “People are more attentive to this than they were years ago.”

Employees are usually told in January how much their year-end bonus will be. These merit-based bonuses, which include cash and stock awards, typically come on top of a base salary, which on Wall Street can vary from $100,000 to more than $1 million for top executives.

Johnson Associates expects bonuses for top bank executives, like Lloyd C. Blankfein, Goldman’s chairman and chief executive, to be flat compared with those last year. Blankfein’s total compensation was $21 million in 2012, up from $12 million in 2011.

Johnson said that Wall Street “dropped deeper” during the financial crisis but had recovered faster than Main Street.

“Th e e conomy, of course, hasn’t helped either side,” he said.

The big firms have done much to get their costs under control, Johnson said, but he expects a little more belt-tightening next year and predicted that the wealth management and fixed-income businesses would see improvement.

“I think 2014 will certainly be better,” he said. “Hopefully we’re half to two-thirds through the recovery of Wall Street, but we’re nowhere near done.”