The average bonus paid to employees in New York City’s securities industry grew by 10 percent in 2020 to $184,000, in line with the city’s most recent 9.9 percent projection, likely allowing the city to meet or exceed its income tax revenue projections in FY2021, according to annual estimates released today by New York State Comptroller Thomas P. DiNapoli.
“Wall Street’s near-record year shattered all expectations. The early forecast of a disastrous year for financial markets was sharply reversed by a boom in underwriting activity, historically low interest rates, and surges in trading spurred by volatile markets,” DiNapoli said. “Income tax revenue from New York City’s securities industry will help shore up state and city budgets that are strained by steep declines in other industries, but it comes with a caution. New York benefits when Wall Street succeeds, but our economy won’t fully recover until other sectors can reopen and all New Yorkers have a chance to share in economic success.”
DiNapoli estimates the 2020 bonus pool for New York City securities industry workers increased by 6.8 percent to $31.7 billion during the traditional December-March bonus season, up from $29.7 billion in 2019. The growth of the bonus pool is unique after a recessionary event. Bonuses fell by 33 percent in 2001 after 9/11 and by 47 percent in 2008 after the Great Recession. Bonuses have fallen four times since 2008, with an average decline of 12 percent.
The securities industry accounts for one-fifth of private sector wages in New York City, even though it is less than 5 percent of private sector employment. DiNapoli estimates that nearly 1 in 10 jobs in the city are either directly or indirectly associated with the securities industry.
As a major source of revenue, DiNapoli estimates that the securities industry accounted for 18 percent ($15.1 billion) of state tax collections in state fiscal year (SFY) 2020 and 6 percent ($3.9 billion) of city tax collections in city fiscal year (CFY) 2020.
Pretax profits in 2020 for the broker/dealer operations of New York Stock Exchange member firms (the traditional measure of securities industry profits) increased by 81 percent to $50.9 billion. It was the fifth consecutive year of growth in profits, which are up 256 percent since 2015. Profitability in 2020 was the second highest on record, trailing $61.4 billion recorded in 2009.
Recessions and economic shocks have historically damaged industry profitability. After 9/11, profits fell by 50 percent in 2001 and after the Great Recession profits fluctuated wildly.
In 2020, profits rose because of an increase in trading and underwriting activity, along with lower interest rates. Market conditions experienced significant upheaval beginning in late February due to the pandemic and related public health and fiscal responses, resulting in a flurry of trading activity, creating higher commissions and trading income. Low interest rates also encouraged borrowing, generating fees and interest expense savings.
In 2020, employment in New York City’s securities industry was 179,900, 5 percent smaller than 2007 and 11 percent below its peak in 2000. While New York remains the center of the nation’s securities industry, the total share of jobs has declined from 33 percent in 1990 to 19 percent in 2020. During the pandemic, securities firms swiftly enabled employees to work remotely and some opened trading operations in other parts of the country. It remains to be seen if these relocations are temporary. The industry lost 3,600 jobs, 1.9 percent of employment, in 2020.
DiNapoli’s office releases an annual estimate of bonuses paid during the traditional December through March bonus season to securities industry employees who work 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 withholding 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:
- The Governor’s proposed budget had assumed statewide bonuses for the broader finance and insurance sector would decrease by 15.5 percent in SFY 2021 (ending March 31). Because the city’s securities industry comprises three-quarters of the statewide bonus pool, state tax collections from bonuses will likely be higher than anticipated for the current fiscal year.
- New York City’s budget for CFY 2020 assumes that the bonus pool for securities industry employees will increase by 6.8 percent in 2020, a substantial revision from initial projections of a 34 percent decline. Based on DiNapoli’s estimate, tax revenue from the securities industry bonuses should continue to support income tax revenues coming in at, or better than, expectations. The city’s financial plan for next year assumes securities industry bonuses will increase by a modest 5.4 percent in 2021.
- The average salary (including bonuses) in the city’s securities industry increased by 2 percent to $406,854 in 2019 (the latest annual data available), nearly five times higher than the average in the rest of the private sector ($82,938). By contrast, the average wage in the city’s securities industry was about two times the rest of the private sector in 1981.
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