After the first quarter, Wall Street compensation consulting firm Johnson Associates is projecting mixed incentive pay across financial services, with a generally more upbeat business environment and compensation outlook compared to recent years. There’s a long way to go until the end of the year, though, with political and regulatory uncertainty, rising interest rates and ongoing challenges in global markets keeping full-year pay projections cloudy. That said, in general stronger performance has led to optimism that pay will be higher this year compared to 2016.
Johnson Associates expects asset managers’ incentive compensation to be flat, with private equity professionals riding record assets under management to 5% to 15% comp increases.
Major investment and commercial banking firms have achieved better results overall so far this year but with disparities in bonus outlook based on the business unit in which you work.
Investment banking incentives are up substantially, most significantly in debt and equity underwriting, which Johnson projects to earn bonuses at least 10% to 20% bigger than last year. That good news is dampened somewhat by a decline in advisory revenues, leading to a projected bonus shrinkage in the -5% to -10% range for that business unit.
Fixed income trading incentives are trending up moderately on stronger performance, leading to expectations of a 10% to 15% bonus increase, whereas equities trading incentives down slightly – perhaps -5% or so – due to lower levels of activity.
Banks continue to focus on cost cutting by making strategy shifts to realize technology efficiencies, keeping a conservative hiring outlook and moving headcount to lower-cost locations. They continue to increase staff in their regulatory and cyber-security departments.
Johnson Associates noted that shareholder advisory groups are stifling incentive design at the executive level by calling out instances where prescriptive mandates may not align with business strategies.
Banks have made considerable improvements in performance management using data analytics and technology, but that has led them to hire a smaller number of better-qualified professionals.
In addition, the industry has demonstrated a more nuanced use of market data to benchmark compensation for key positions.
Johnson Associates expects wider differentials in pay for banks to retain top talent, with broad turnover accepted and generally considered healthy.
Banks have increased their focus on cost-of-living differences between New York and California and the rest of the country, leading many to move headcount to lower-cost locations.
Taking into consideration the cash-flow needs of mid- and junior-level professionals, some banks, including many of the elite boutiques, are offering bonuses with more cash up front and less deferred.
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