Recruiters say that year-end bonuses for bankers in New York and London will be 30% to 50% less than last year, and some may not get any at all as deal-making slows and economic gloom sets in.
Finance workers are disappointed when their pay raises come in the first quarter, and recruiters and compensation experts say that thousands more of their coworkers could be laid off after hundreds were fired this year.
As the economy roared back to life after the pandemic, the industry gave out the largest awards since 2006.
But this year, the number of mergers, acquisitions, and stock offerings has slowed down by a huge amount. This is because the debt financing markets have collapsed and the volatility of the stock market has hurt valuations. As the year went on, the chances of a recession also went up because the Federal Reserve was raising interest rates quickly to fight inflation, which slowed down the economy.
According to Sheffield Haworth, a firm that finds jobs for top executives, the average pay for U.S. managing directors at Goldman Sachs Group Inc (NYSE:GS) will likely fall by 40% to 45% in 2022 due to tougher times.
According to a report written by Sheffield Haworth’s head of the Americas, Julian Bell, and a vice president named Natalie Machicao, the average pay for senior bankers at Morgan Stanley (NYSE: MS) is expected to drop by 35% to 40%.
It’s a crazy turn of events for the people who made deals last year and helped their companies make record profits and get huge payouts for themselves.
“This year, ‘flat’ is once again the new ‘up,’ and most people are just hoping not to see a big cut in their pay since the industry as a whole is making less money,” said Stephane Rambosson, cofounder of Vici Advisory in London, which specialises in hiring senior investment bankers.
According to Sheffield Haworth, the average total compensation for U.S. managing directors at JPMorgan Chase & Co (NYSE: JPM) will fall by 35% to 40%.Senior bankers at Citigroup Inc. (NYSE:C) and Bank of America Corp. (NYSE:BAC) will likely see their pay drop by 35% and 30%, respectively.
Even though the estimates are based on averages, payouts can vary a lot depending on how well each person or group does.
The banks didn’t say anything.
Wall Street Prep, a company that helps people train to be bankers, says that managing directors at Wall Street banks usually make between $350,000 and $600,000 a year, plus bonuses that are one or two times their base pay. When it comes to top performers, incentive pay can reach millions of dollars.
According to data from Dealogic, the value of global equity underwriting deals has dropped by 66%, or $517 billion, this year compared to 2021. This is the same time that pay has dropped. The total value of mergers and acquisitions dropped 37% by December 20 to $3.66 trillion, after reaching a record high of $5.9 trillion last year.
The economy is slowing down because the U.S. Federal Reserve and other central banks are aggressively raising interest rates to fight inflation. This has cut down on economic activity.
Some markets were also very volatile because of other risks, such as economic uncertainty caused by the war in Ukraine, tense relations between the U.S. and China, and tangled supply chains.
The traders who worked with fixed income, currencies, and commodities (FICC) did better than their colleagues in investment banking. Bell at Sheffield Haworth said that FICC traders’ pay will likely go up a little or stay the same, while stock traders’ pay could go down a little.
FICC traders at Barclays (LON:BARC) made twice as much money in the third quarter as they did the year before. This was a bright spot that helped the bank beat expectations despite rising costs in other areas.
Already, companies like Morgan Stanley and Citigroup Inc. have cut jobs because the economy is getting worse. A source with knowledge of the situation said that Goldman Sachs plans to let go of thousands of workers in the new year. This comes after a first round of layoffs this year.
Most big companies in the UK are talking about and giving out bonuses right now, but most decisions won’t be made public until early next year. Barclays and HSBC have already started to cut back on staff in parts of investment banking that aren’t doing well.
As household incomes fall because of rising prices, British banks are also under a lot of pressure to raise wages for their lower-paid workers. NatWest gave most of its 41,500 employees in Britain a pay raise and a one-time cash payment after lower-paid workers who missed out earlier this year complained.
Sophie Scholes, a partner at Heidrick & Struggles (NASDAQ:HSII) in London, said, “We expect bonus pools to be smaller than last year, and some institutions won’t give bonuses at all.”
She said that some people would be upset if star performers were rewarded more than their other coworkers.