February 29, 2012
Wall Street Bonuses Declined in 2011
Industry Profits Down by Half from Prior Year
Cash bonuses paid to New York City securities industry employees are forecast to decline by 14 percent to $19.7 billion during this year’s bonus season, according to an estimate released today by State Comptroller Thomas P. DiNapoli.
Click here to view a video of Comptroller DiNapoli discussing this year’s Wall Street bonus report
“Cash bonuses were down in 2011, reflecting a difficult year on Wall Street,” DiNapoli said. “Profits were down sharply and securities firms in New York City resumed downsizing in the second half of the year. The securities industry, which is a critical component of the economies of New York City and New York State, faces continued challenges as it works through the fallout from the financial crisis and adjusts to regulatory reforms.”
The Comptroller also estimates that profits for the broker/dealer operations of New York Stock Exchange member firms, the traditional measure of profitability for the securities industry, did not exceed $13.5 billion in 2011, which would be less than half of the $27.6 billion earned in 2010. This would be the second year in a row that profits dropped by more than half.
While the industry had a strong first half with profits of $12.6 billion, it lost $3 billion during the third quarter. Underlying profitability at the large firms was even weaker than reported because profits were boosted by accounting adjustments. The industry earned a record $61.4 billion in 2009 with the benefit of federal assistance after losing a record total of $53.9 billion over the course of 2007 and 2008.
While a number of large firms announced reductions in cash bonuses for 2011 (with several firms reporting reductions in the range of 20 to 30 percent), personal income tax collections indicate a smaller decline in the overall cash bonus pool. This is likely due to the payment of bonuses that had been deferred from earlier years. The increased use of deferred compensation should create a pipeline of bonuses that will be paid in future years, which will reduce volatility in industry tax payments.
DiNapoli’s office releases an annual estimate of cash bonuses paid to securities industry employees who work in New York City during the traditional bonus season. 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. The Comptroller’s estimate is based on personal income tax trends and reflects cash bonuses and deferred compensation for which taxes have been withheld. The estimate does not include stock options or other forms of deferred compensation that have not been realized.
DiNapoli also reported that:
Click here for a chart showing net cash bonuses paid from 1985-2011.
Click here for a chart showing Wall Street profits from 1995-2011.