The average bonus paid in New York City's security industry rose by 2 percent to $172,860 in 2014, according to an estimate released today by New York State Comptroller Thomas P. DiNapoli. Even though the industry was slightly less profitable in 2014, it added 2,300 jobs in New York City, the first year the industry has added jobs since 2011.
"The cost of legal settlements related to the 2008 financial crisis continues to be a drag on Wall Street profits, but the securities industry remains profitable and well-compensated even as it adjusts to regulatory changes," DiNapoli said. "The resumption of job growth in the securities industry bodes well for the New York's economy, but it remains to be seen whether this trend will be sustained."
The industry reported that pre-tax profits for the broker/dealer operations of New York Stock Exchange (NYSE) member firms — the traditional measure of industry profitability — totaled $16 billion in 2014. This represents a decline of 4.5 percent from $16.7 billion in 2013 and is the second year in a row that profits declined (profits fell by 30 percent in 2013).
Industry profits were lower because of weakness in fixed income and commodities trading, higher capital reserve requirements, and the continued cost of legal settlements stemming from the financial crisis. The nation's six largest bank holding companies also reported a decline in profits in 2014 (8.5 percent).
The securities industry has undergone significant changes since the 2008 financial crisis. Regulatory reforms are changing the way the industry does business by requiring larger reserves, limiting proprietary trading and imposing other changes intended to reduce unnecessary risk and to enhance transparency. In response to compensation reforms, firms now pay a smaller share of bonuses in the current year and a larger share is deferred to future years in an effort to reduce excessive risk-taking.
After years of downsizing, securities industry employment in New York City increased by 1.4 percent to 167,800 workers, adding 2,300 jobs in 2014. While the industry is still 11 percent smaller than before the financial crisis (2007), the resumption of job growth is good news for the state and the city's economy. According to DiNapoli's analysis, each new job in the securities industry leads to the creation of two additional jobs in other industries in the city. It remains to be seen, however, whether the job gains can be sustained in 2015.
For nearly three decades, the Office of the State Comptroller has tracked Wall Street's performance and the bonuses paid to its employees in New York City. Bonuses paid by firms to their employees located outside of New York City (whether in domestic or international locations) are not included. The Comptroller's estimate is based on personal income tax trends, which do not distinguish between cash bonuses for the current year and compensation deferred from prior years. The estimate does not include stock options or other forms of deferred compensation for which taxes have not been withheld.
DiNapoli also reported that:
- The bonus pool for securities industry employees who work in New York City grew by 3 percent during the traditional December-March bonus season to reach $28.5 billion for 2014. The Comptroller's estimates includes cash bonuses for the current year and bonuses deferred from prior years that have been cashed in. The current budgets for New York State and New York City both assume a small increase in bonuses, consistent with DiNapoli's forecast;
- The average bonus rose by 2 percent to $172,860 in 2014, the highest level since the financial crisis. The growth in the average bonus was much stronger in the two previous years when bonuses increased by a total of 52 percent. The increase in the average bonus in 2014 was a bit smaller than the increase in the bonus pool (3 percent) because the pool was shared among a larger number of employees than in the prior year;
- Non-compensation expenses, which include the cost of legal settlements, increased from an annual average of about $40 billion during the eight years prior to the financial crisis to $61 billion in 2013 and remained at an elevated level in 2014 ($62.8 billion). The securities industry does not disaggregate settlements costs from other non-compensation expenses, which also includes items such as rent, communications and commissions;
- The securities industry in New York City lost 28,000 jobs during the financial crisis. Although the industry added jobs during the early part of the recovery, it resumed downsizing after August 2011. The number of securities industry jobs in New York City averaged 167,800 in 2014, 11 percent fewer than before the financial crisis (2007). New York City's share of the nation's securities industry jobs also declined during this period from 20.9 percent in 2007 to 19 percent in 2014;
- Although the securities industry is smaller, it is still one of New York City's most powerful economic engines. The industry, for example, accounted for almost 21 percent of all private sector wages paid in New York City in 2013 even though it accounted for less than 5 percent of the city's private sector jobs. An estimated 1 in 9 jobs in the city are either directly or indirectly associated with the securities industry;
- Unlike in prior economic recoveries, the securities industry has not been a driving force in the current jobs recovery in New York City. So far, the securities industry has accounted for less than 2 percent of the private sector jobs added, compared with 10 percent during the two prior recoveries;
- The securities industry in New York City added 2,300 jobs in 2014, after years of downsizing. Although the job gains continued into January 2015, it remains to be seen whether this trend will be sustained throughout 2015;
- A resumption of job growth in the high-paying securities industry would benefit the city's economy given the industry's high multiplier effect. The Comptroller estimates that each new job in this high-paying industry results in the creation of two additional jobs in other industries in the city, and an additional job in the suburbs;
- After record losses during the financial crisis, the securities industry has been profitable for six consecutive years, including the three best years on record; and
- Securities-related activities are a large contributor to state and city tax revenues. DiNapoli estimates that securities-related activities accounted for 6.7 percent of all city tax revenue in city fiscal year 2014 and 19 percent of State tax collections in state Fiscal Year 2013-14.
See a video on this report at Wall Street Bonus Report video.
See the chart showing the Comptroller's estimates of the bonus pool from 1986-2014.