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February 26, 2013

Wall Street Bonuses Rose In 2012

Industry Profits Rebound from Prior Year

Cash bonuses paid to New York City securities industry employees are forecast to rise by 8 percent to $20 billion during this year’s bonus season, according to an estimate released today by State Comptroller Thomas P. DiNapoli.

“Wall Street is still in transition, but it is slowly adjusting to changes in its economic and regulatory environment,” DiNapoli said. "Profits and bonuses rebounded in 2012, but the industry is still restructuring. Despite its smaller size, the securities industry is still a very important part of the New York City and New York State economies."

The industry reports that profits for the broker/dealer operations of New York Stock Exchange member firms, the traditional measure of profitability for the securities industry, totaled $23.9 billion in 2012. Such a level of profitability is three times the $7.7 billion earned in 2011 and is among the most profitable years on record. Other activities of the large bank holding companies, however, were less profitable than last year.

The securities industry has changed dramatically since the 2008 financial crisis. Before the crisis, seven separate firms dominated the industry. Since then, Lehman Brothers went bankrupt and Bear Stearns and Merrill Lynch were sold to banks. The industry is also smaller, with 10 percent fewer jobs in New York City.

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. Overall, the deferral of bonuses will help reduce volatility in tax payments from the industry. In response to the fiscal cliff, a larger share of bonuses were paid in December 2012 to avoid higher federal tax rates scheduled to take effect in 2013.

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 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 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 paid out.

DiNapoli also reported that:

  • The average cash bonus rose by an estimated 9 percent to almost $121,900 in 2012. The average bonus rose more than the total cash bonus pool because the pool was shared among fewer workers than in 2011.
  • After strong job gains in the securities industry in New York City during 2010 and 2011, employment was largely unchanged in the first half of 2012 and was slightly lower in the second half as the industry resumed downsizing.
  • Employment totaled 169,700 jobs as of December 2012 -- 1,000 fewer jobs than one year earlier. DiNapoli believes the industry will continue to restructure and downsize until a new business paradigm is established.
  • Unlike past economic recoveries, the current recovery in New York City is being driven by industries other than securities. While New York City has regained more jobs than it lost during the economic downturn (154 percent), the securities industry, on a seasonally adjusted basis, has regained only 30 percent of the jobs lost during the downturn.
  • The Comptroller estimates that the securities industry in New York City lost 28,300 jobs during the financial crisis and has added only 8,500 so far during the recovery, a net loss of 19,800 jobs.
  • Despite job losses, New York State has more securities industry jobs than any other state in the nation (and nearly two and a half times the number of individuals employed in second-ranked California), with nearly 90 percent of those jobs located in New York City.
  • The average salary, including bonuses, in the securities industry in New York City edged up slightly to almost $362,900 in 2011. (Wage data is not yet available for all of 2012.) This was a higher average than before the financial crisis and was the highest average among New York City’s major industries.
  • The disparity between the average salary in the securities industry and the rest of New York City’s private sector narrowed slightly in 2011, but it remained wide, at 5.3 times more than the rest of the private sector ($67,900).
  • In 2011, the securities industry accounted for 23 percent of all private sector wages paid in New York City, even though it accounted for only 5 percent of the city’s private sector jobs.
  • Although profitability varied among the six largest bank holding companies headquartered in the U.S. (whose global activities extend beyond securities and investment banking to include commercial and retail banking), as a group they reported slightly higher profits in 2012 (3 percent). Although these firms had fewer worldwide employees in 2012, on average, those employees were better compensated.
  • 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 declined to 14 percent last year. Wall Street’s share of city tax collections has declined from a peak of more than 12 percent to less than 7 percent.
  • Personal income tax withholding collections from all taxpayers in New York City were 15 percent higher for December 2012 than one year earlier, in large part because high-income taxpayers shifted compensation, such as bonuses, into 2012 to avoid the threat of higher federal income tax rates in 2013. The Comptroller estimates that about $2.5 billion of income was shifted into 2012.
  • The increase in bonuses forecast by the Comptroller is consistent with the expectations in budgets of New York City and New York State.

Click here for a chart showing net cash bonuses paid from 1985-2012.

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