Insiders on Wall Street from CEOs down to investment banking analysts expect to see a dip in compensation this year versus last, reports the LA Times. Although the release of bonuses are still a few weeks away, many are predicting that 2011 compensation levels at the largest investment banks will fall between 15% to 30%.
Banks have been hammered this year by global economic uncertainty, volatile markets, and more restrictive regulations coming out of Washington, D.C. This marks an abrupt halt to the quick bounce the industry enjoyed coming out of the financial crisis, when there was a brief uptick in employment and bonuses.
“Generally speaking, everybody is cutting back big time,” said Steven Eckhaus, an executive compensation expert at the law firm Katten Muchin Rosenman, who is quoted in the article. “The mood is wary.”
Nervousness among investors has also sent shares of investment banks and brokerages southward. And these falling stock prices mean that stock options for executives which are part of their compensation package will also be worth much less.
In addition, recent financial regulations have forced banks to cut back on some of their most profitable activities, such as proprietary trading, and pressured banks to retain more of their capital.
But while banks trim their work force and compensation levels, there are always bright spots. The cutbacks are not affecting all aspects of investment banking the same way. While traditional mergers and acquisitions bankers may see their compensation drop by as much as 14%, bond traders face steeper pay cuts because of current rock-bottom interest rates that squeeze profit margins.
And all this news still doesn’t mean investment banking jobs aren’t among the most lucrative on the planet. Goldman Sachs, for example, set aside enough funds in the first nine months of 2011 to pay each of its 34,200 employees an average compensation of $292,000 for the year. And that number could grow larger before the end of the fourth quarter.
How does all this affect you? Are you seeing mild or major reductions in compensation at your firm? Add your comments below.