This year, your bonus is that you get to keep your job. That is the bad news that will be dished out to many disappointed staff during annual reviews at the major Wall Street firms this year.
We all know that volumes have been trading at subterranean levels, which have created a real drought of commission incomes. New regulations imposed by Dodd-Frank and the Volker rule mean that banks have to become boring, no longer able to juice earnings with trading revenues. For boring, read less profitable, leading to smaller budgets for compensation. This is the price of preventing banks from committing suicide with your money in hand.
Industry compensation experts are seeing bonus cuts of up to 30%. Bond trading divisions are seeing the greatest cuts, reflecting a generational peaking of bond prices and volumes. Next is anything related to home mortgage origination and precious metals.
Senior staff are being nudged toward early retirement to further reduce overhead. Only private wealth managers are seeing pay increases, thanks to their ability to charge rich fees for enhanced customer service and place high margin products, like local municipal bonds.
The scary thing is that shrinking payouts is a trend that could continue for years. When I first started working on Wall Street 40 years ago, one out of three taxi drivers were brokers recently rendered jobless by deregulated commissions. Rates of 25 cents a share supported a lot of fluff.
Be careful next time you cross the street. You might get hit with some free investment advice.