Securities industry profitability rose sharply in 2016, increasing by 21 percent, while the average bonus paid to employees in New York City’s securities industry increased by 1 percent to $138,210, according to an estimate released today by New York State Comptroller Thomas P. DiNapoli.
"Wall Street profits bounced back strongly in 2016. Lower costs more than made up for the continued decline in revenues," DiNapoli said. "Bonuses were up only slightly in New York City as the industry held the line on compensation. The jump in profitability is good news since the industry generates a significant amount of tax revenue for both the state and city budgets."
Pretax profits for the broker/dealer operations of New York Stock Exchange member firms, the traditional measure of industry profitability, totaled $17.3 billion in 2016, the highest level in four years. This is an increase of 21 percent over the $14.3 billion in profits in 2015, reversing a three-year trend of declining profits. Profits were driven by cost-cutting and lower noncompensation expenses, which include the cost of legal settlements.
The securities industry in New York City added 3,800 jobs in 2016 to reach 177,000, the highest annual level since the financial crisis. This was the third consecutive year of job gains, although job growth slowed. The industry added 2,800 jobs in 2014 and 4,500 jobs in 2015.
Despite job gains, the securities industry in New York City is 6 percent smaller than in 2007, while the rest of the private sector has grown by 20 percent. Nonetheless, the industry remains an important part of the city’s economy. The industry accounts for less than 5 percent of the private sector jobs in the city, but generates more than one-fifth of the private sector wages paid. DiNapoli estimates that nearly 1 in 10 jobs in the city are either directly or indirectly associated with the securities industry.
DiNapoli’s office releases an annual estimate of bonuses paid to securities industry employees who work in New York City during the traditional bonus season. 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 and includes cash bonuses for the current year and bonuses deferred from prior years that have been cashed in. 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 total 2016 bonus pool for all securities industry employees who work in New York City rose by 2 percent during the traditional December-March bonus season to reach $23.9 billion. This was the first increase in the pool in three years.
- The average bonus per employee in New York City increased by 1 percent to $138,210 in 2016. The average bonus rose at a slower rate than the total pool because the pool was shared by a larger number of employees than last year.
- The stock market rally helped industry revenues increase by 8 percent during the second half of the year, but it was not enough to offset the 9 percent decline in the first half. Consequently, revenues for the full year declined slightly (by 1.3 percent). Revenues have been weak for several years and this was the second consecutive annual decline.
- Noncompensation expenses, which include legal settlements, declined by nearly $3.8 billion (6.2 percent) in 2016, the second year that these costs were lower. The decline comes after costs climbed by more than one third between 2008 and 2014. The industry does not break out the cost of legal settlements from other noncompensation costs.
- The average salary (including bonuses) in the city’s securities industry ($388,000 in 2015, the latest annual data available) was five times higher than in the rest of the private sector ($74,000). Nearly one-quarter (23 percent) of the industry’s employees in the city earned more than $250,000, compared with 2 percent in the rest of the city’s workforce.
- Securities-related activities are a major source of revenue for the state and city. DiNapoli estimated that the securities industry accounted for 18.5 percent ($13.8 billion) of state tax collections in state fiscal year 2015-2016 and 7 percent ($3.7 billion) of city tax collections in city fiscal year 2016.
- Since the state budget had assumed securities industry profits would reach $21 billion, business tax collections could be lower than anticipated. However, it also assumed that the statewide bonus pool for the broader finance and insurance sector would decline by 1.7 percent. Since New York City’s securities industry accounts for about three-quarters of that pool, the state may realize additional personal income tax collections, offsetting the business tax loss. The net impact should be minimal.
- New York City’s budget had assumed that profits would reach $18 billion and that the bonus pool for securities industry employees in the city would increase by 2 percent. As a result, tax collections should be close to forecast.
Chart showing the Comptroller’s estimates of the bonus pool and average bonuses from 1987-2016.
Chart showing Wall Street’s annual profits and employment.