Wall Street and Big Tech brace for much lower bonuses this year

When it comes to the potential for a decline in bonuses this year, “it’s more visible in tech, in particular, and financial services,” Alan Johnson of the compensation consultancy Johnson Associates, told me. Both industries are coming off last year’s historic highs in bonuses, Johnson says.

‘It’s a volatile business’

Johnson Associates’ August report projected that after the second quarter we would see a year-end decrease in incentive compensation across financial services. Investment banking underwriters will most likely see a decrease in bonuses by as much as 45%, according to the report. Meanwhile, asset management professionals and corporate staff might see a decline of 15% to 20%. Depending on the size of their firm, private equity professionals might receive up to a 10% bonus cut.

“It’s a volatile business,” Johnson explains. “Some of those did terrific in 2021. But the revenues have just gone off the cliff in terms of, for example, M&A or underwriting. Bonuses were “abnormally high in 2021; and this year, it’s going to be abnormally low,” he says. The firm calculated the projected year-end incentives on a headcount-adjusted basis based on publicly available data and direct conversations with clients, Johnson says.

I asked him when financial services companies typically conclude they have to start cutting back on bonuses. It varies, he says. “As you get into August and September, you’ve got a pretty good idea how the year is looking,” Johnson explains. “Usually right after Labor Day, firms will very aggressively start to think about how big the aggregate pools might be, and also begin to pencil what [bonuses] would be for individuals.”

Are there areas where bonuses will go up? “Fixed income has benefited significantly from the volatility in the market,” Johnson says. “So, bond traders would be the leading candidate to go up,” he says. “They will go up, but probably much less than they would have if the results of other areas have been better.”

Are layoffs in financial services on the horizon? “Unfortunately, I think so,” Johnson says. “I think most firms feel they’re a little overstaffed. They’ve already started to restrain their recruiting, and they’re going to look at voluntary turnover. But if that doesn’t get them to the numbers they’re looking for, they’re certainly going to have layoffs. By February or March of next year, I think most firms want to be at what they perceive as their right headcount and composition.”

See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

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Big deal

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Going deeper

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Leaderboard

Brad Little was named CFO at DIRTT, an industrialized construction company (Nasdaq: DRTT, TSX: DRT), effective August 23. Little will lead the finance team as DIRTT continues to realign the organization, according to the company. He brings over 20 years of experience in finance with companies including Black Mountain Sand, Cornerstone Building Brands, Willbros, Technip, and PwC. Little is also a published author and co-founder of 84 Phoenix, a non-profit that supports education in underdeveloped areas.

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Overheard

“Expectations of an ongoing surge in inflation in Europe along with the sentiment that central banks will pursue aggressive tightening is making investors extremely anxious.”

—Greg Daco, EY-Parthenon’s chief economist, believes the markets will remain in “a highly volatile environment for the foreseeable future,” as reported by Fortune. 

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