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February 23, 2011

 

DiNapoli: Wall Street Bonuses Declined in 2010

Earnings Down from Record High, but Wall Street Has Second Best Year Ever

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Cash bonuses paid to New York City securities industry employees declined by nearly 8 percent to $20.8 billion in 2010, about one third less than paid out in 2007 before the financial crisis, according to an estimate released today by State Comptroller Thomas P. DiNapoli. The decline in the cash bonus pool reflects changes adopted by the industry in response to regulatory reforms, such as a shift toward deferred compensation and higher base salaries. Wall Street profits totaled $27.6 billion in 2010, which would be second only to 2009 when the industry benefited from federal bailouts and low interest rates.

"Cash bonuses are down, but that's not an indicator of a weakness on Wall Street," DiNapoli said. "Wall Street is changing its compensation practices in response to regulatory reforms adopted in the aftermath of the greatest financial meltdown since the Great Depression. Past practices rewarded short-term gains at the expense of long-term profitability."

"The industry's greater emphasis on deferred compensation will hold down tax collections this year, but the State and the City will benefit in future years when taxes are paid on this deferred compensation. A more stable and less volatile securities industry is in the best interests of Wall Street, the City and the State."

DiNapoli's office annually releases an estimate of bonuses paid to securities industry employees who work in New York City. Bonuses paid by New York City-based firms to their employees located outside of the City (whether in domestic or international locations) are not included. DiNapoli's estimate is based on personal income tax trends and reflects cash bonuses and deferred compensation for which taxes have been prepaid. The estimate does not include stock options that have not been realized or other forms of deferred compensation.

Last year, bonus payments extended into March and even April, well beyond the traditional bonus season. As a result, the Comptroller has revised his estimate of the growth in the 2009 bonus pool from 17 percent to 27 percent.

DiNapoli also reported that:

  • The profits of the broker/dealer operations of New York Stock Exchange member firms, the traditional measure of Wall Street profitability, totaled $27.6 billion in 2010, making 2010 the second most profitable year on record after the $61.4 billion record set in 2009, which was fueled by federal bailouts, low interest rates, and proprietary trading.
  • Strong Wall Street profits combined with a profitable banking sector helped drive New York City's tax collections higher in City fiscal year 2011.
  • Before the start of the financial crisis, business and personal income tax collections from Wall Street related activities accounted for up to 20 percent of New York State tax revenues, but that contribution has declined to about 13 percent in the current year. Wall Street's contribution to the City's budget has declined from 13 percent of City tax revenues to 7 percent.
  • The member firms of the New York Stock Exchange devoted nearly 47 percent of their net revenue to compensation (e.g., salary and bonuses) in 2010, which is in line with historical shares before the financial crisis but much higher than the 2009 share.
  • Although the size of the cash bonus pool has declined, overall compensation has grown. An examination of the financial statements for selected securities firms indicates that overall compensation was higher by 6 percent in 2010.
  • Wages paid to workers in the securities industry in New York City during the first half of 2010 were 21.9 percent higher compared with the prior year, reflecting cash bonuses paid during the first quarter of 2010 for 2009 activities, higher base salaries, and deferred compensation that was realized during that period.
  • The securities industry in New York City lost 30,700 jobs during the recession, a decline of 16 percent, or 3.5 times the rate of total job loss in New York City.
  • The securities industry in New York City added 3,600 jobs between August 2010 and December 2010, and an examination of trends in employment covered by New York State unemployment insurance suggest job gains may have been even stronger during this period. The New York State Department of Labor is scheduled to release revised employment data in March 2011.
  • The average cash bonus declined by 9 percent to $128,530 in 2010. The average bonus declined slightly faster than the total bonus pool because the pool was shared among slightly more workers than in 2009.
Click here for a chart showing bonuses paid from 1985-2010.


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