Wall Street Bonuses Up

PRESS RELEASE FROM THE STATE COMPTROLLER’S OFFICE

Cash bonuses paid to New York City securities industry employees areย forecast to rise by 8 percent to $20 billion during this yearโ€™s bonusย season, according to an estimate released by State Comptroller Thomasย P. DiNapoli.

โ€œWall Street is still in transition, but it is slowly adjusting to changesย in its economic and regulatory environment,โ€ DiNapoli said. “Profits andย bonuses rebounded in 2012, but the industry is still restructuring. Despiteย its smaller size, the securities industry is still a very important part ofย the New York City and New York State economies.”

The industry reports that profits for the broker/dealer operations of Newย York Stock Exchange member firms, the traditional measure of profitabilityย for the securities industry, totaled $23.9 billion in 2012. Such a level ofย profitability is three times the $7.7 billion earned in 2011 and is amongย the most profitable years on record. ย Other activities of the large bankย holding companies, however, were less profitable than last year.

The securities industry has changed dramatically since the 2008 financialย crisis. Before the crisis, seven separate firms dominated the industry.ย Since then, Lehman Brothers went bankrupt and Bear Stearns and Merrillย Lynch were sold to banks. The industry is also smaller, with 10 percentย fewer jobs in New York City.

Regulatory reforms are changing the way the industry does business byrequiring larger reserves, limiting proprietary trading and imposing otherย changes intended to reduce unnecessary risk and to enhance transparency.ย In response to compensation reforms, firms now pay a smaller share ofย bonuses in the current year and a larger share is deferred to future years.

Overall, the deferral of bonuses will help reduce volatility in taxย payments from the industry. In response to the fiscal cliff, a larger shareย of bonuses were paid in December 2012 to avoid higher federal tax ratesย scheduled to take effect in 2013.

DiNapoliโ€™s office releases an annual estimate of cash bonuses paid toย securities industry employees who work in New York City during theย traditional bonus season. Bonuses paid by firms to their employees locatedย outside of New York City (whether in domestic or international locations)ย are not included. The Comptrollerโ€™s estimate is based on personal incomeย tax trends and reflects cash bonuses and deferred compensation for whichย taxes have been withheld. The estimate does not include stock options orย other forms of deferred compensation that have not been paid out.

DiNapoli also reported that:
ยท The average cash bonus rose by an estimated 9 percent to almostย $121,900 in 2012. The average bonus rose more than the total cashย bonus pool because the pool was shared among fewer workers than inย 2011.
ยท After strong job gains in the securities industry in New York Cityย during 2010 and 2011, employment was largely unchanged in the firstย half of 2012 and was slightly lower in the second half as theย industry resumed downsizing.
ยท Employment totaled 169,700 jobs as of December 2012 — 1,000 fewerย jobs than one year earlier. DiNapoli believes the industry willย continue to restructure and downsize until a new business paradigm isย established.
ยท Unlike past economic recoveries, the current recovery in New Yorkย City is being driven by industries other than securities. While Newย York City has regained more jobs than it lost during the economicย downturn (154 percent), the securities industry, on a seasonallyย adjusted basis, has regained only 30 percent of the jobs lost duringย the downturn.
ยท The Comptroller estimates that the securities industry in New Yorkย City lost 28,300 jobs during the financial crisis and has added onlyย 8,500 so far during the recovery, a net loss of 19,800 jobs.
ยท Despite job losses, New York State has more securities industry jobsย than any other state in the nation (and nearly two and a half timesย the number of individuals employed in second-ranked California), withย nearly 90 percent of those jobs located in New York City.
ยท The average salary, including bonuses, in the securities industry inย New York City edged up slightly to almost $362,900 in 2011. (Wageย data is not yet available for all of 2012.) This was a higher averageย than before the financial crisis and was the highest average amongย New York Cityโ€™s major industries.
ยท The disparity between the average salary in the securities industryย and the rest of New York Cityโ€™s private sector narrowed slightly inย 2011, but it remained wide, at 5.3 times more than the rest of theย private sector ($67,900).
ยท In 2011, the securities industry accounted for 23 percent of allย private sector wages paid in New York City, even though it accountedย for only 5 percent of the cityโ€™s private sector jobs.
ยท Although profitability varied among the six largest bank holdingย companies headquartered in the U.S. (whose global activities extendย beyond securities and investment banking to include commercial andย retail banking), as a group they reported slightly higher profits inย 2012 (3 percent). Although these firms had fewer worldwide employeesย in 2012, on average, those employees were better compensated.
ยท Before the start of the financial crisis, business and personalย income tax collections from Wall Street related activities accountedย for up to 20 percent of New York State tax revenues, but thatย contribution declined to 14 percent last year. Wall Streetโ€™s share of
city tax collections has declined from a peak of more than 12 percentย to less than 7 percent.
ยท Personal income tax withholding collections from all taxpayers in Newย York City were 15 percent higher for December 2012 than one yearย earlier, in large part because high-income taxpayers shiftedย compensation, such as bonuses, into 2012 to avoid the threat ofย higher federal income tax rates in 2013. The Comptroller estimatesย that about $2.5 billion of income was shifted into 2012.
ยท The increase in bonuses forecast by the Comptroller is consistentย with the expectations in budgets of New York City and New York State.

You must be logged in to post a comment Login