Wall Street Bonuses Set New Record
Wall Street is expected to pay out $23.9 billion in bonuses in 2006, surpassing last year’s record of $20.5 billion, according to a forecast released today by State Comptroller Alan G. Hevesi.
"The securities industry had another great year in 2006, with some of the largest firms having their best year ever. This translates into record year-end bonuses and great news for the region’s economy," Hevesi said.
The State Comptroller forecasts that bonuses paid to workers in the securities industry in New York City will total $23.9 billion in 2006, which surpasses last year’s record of $20.5 billion by 17 percent. The forecast reflects the strength of traditional Wall Street activities, but also an expansion into global markets and increased demand for other services, such as hedge funds. The estimate does not include stock options that have not yet been exercised, which could increase the value of bonuses realized by employees by billions of dollars.
Bonuses will average $137,580 in 2006 or 15 percent higher than last year. These estimates represent an average for all securities industry employees. Actual bonuses, however, will vary by individual and by firm, ranging from hundreds of dollars for clerical and support staff to tens of millions of dollars for high performers and key executives.
The State Comptroller estimates that Wall Street bonuses will generate $1.6 billion in tax revenues for New York State and another $500 million for New York City. Total State and City tax collections from bonuses will exceed last year’s record level by 15 percent. The overall strength of the securities industry, with many firms reporting record revenues and profits, is helping to drive up State and the City tax collections beyond the estimates made at the beginning of their fiscal years.
According to the Securities Industry and Financial Markets Association, member firms of the New York Stock Exchange will realize profits of $17.2 billion from traditional Wall Street activities, such as stock trading and new issuances, which is the second highest level on record. This represents an increase of 82 percent over last year’s level and is second only to the $21 billion earned at the peak of the last bull market in 2000. New York City’s latest four-year financial plan assumes that Wall Street profits will total $14.5 billion in 2006, but actual profits are likely to exceed that amount by 18 percent.
Employment in the securities industry in New York City also increased sharply in 2006, although the rate of growth has slowed since the summer. During the first 10 months of 2006, employment averaged 177,300, or 7,200 more than during the same period last year. Previous reports by the State Comptroller have found that each new job created in the securities industry in New York City results in the creation of two other jobs in the City and one job in the surrounding suburbs.
"When Wall Street does well, New York City and New York State do well," Hevesi said. "Wall Street bonuses are spent in the City and in surrounding suburbs on entertainment, real estate, automobiles, and other consumer goods—all of which generates jobs and tax revenues."
The Comptroller also reported that:
- The average Wall Street bonus is nearly two-and-a-half times the average annual salary for all non-financial jobs in New York City.
- Wall Street accounts for less than 5 percent of the jobs in New York City, but more than 20 percent of the wages.
- New York City’s share of U.S. securities employment fell by more than 12 percentage points between 1990 and 2003, but the City’s share has been growing slowly ever since as job growth in the City’s securities industry is outpacing the growth in the industry in rest of the nation.
- Wages in New York City’s securities industry accounted for 94 percent of the securities industry wages paid in New York State and 37 percent of the amount paid in the nation.
- Total annual wages in the securities industry grew by an estimated 49 percent since 2003, which was two and half times faster than wages in the rest of the City’s economy.
- The New York Stock Exchange reported that revenues of member firms grew by 45.4 percent during the first three quarters of 2006, which was higher than the gains during all of 2005.
- The New York Stock Exchange also reported that profits of member firms from traditional broker/dealer activities totaled $13.3 billion during the first three quarters of 2006, an increase of 86.5 percent from the same period in 2005.
- Total profits at the seven largest financial firms headquartered in New York City, which are highly diversified, reached $29.5 billion during the first three quarters of 2006 or nearly 50 percent higher than the same period in 2005. The firms that have announced fourth quarter results (Bear Sterns, Goldman Sachs, Lehman Brothers, and Morgan Stanley) all reported record revenues and profits for 2006.
"Wall Street is a critical component of New York City’s economy and a key contributor to its budgetary health. I applaud Mayor Bloomberg’s efforts to support the industry and work to improve the City’s competitive position relative to other major financial centers," Hevesi said. "At the same time, New York City must also work to develop high-paying jobs in other industries in order to further diversify the local economy."
Click here for a chart detailing bonuses paid 1985-2006.