11.08.2016
By John D'Antona

Equity Trader Bonuses Seen Down 5% to 15% in 2016

Buy- and sell-side traders shouldn’t order that new Ferrari or purchase a new home in the Hamptons this year as year-end compensation is expected to be disappointing.

In its annual survey and report, executive recruitment and compensation consultancy Johnson Associates said that Wall Street’s year-end bonus incentives are expected to be modestly lower compared with last year, marking the second consecutive year of smaller incentive payouts. Equity traders can expect to see their bonus payouts shrink 5% to 15% for the year.

The Johnson Associates third quarter compensation analysis shows that overall year-end incentives, which include cash bonuses and equity awards, will be lower by 5 to 10% overall across the board compared to last year, when bonuses also fell by 5 to 10%.

Last year the firm reported that bonuses in 2015 would be down 5% from the year prior.

This wasn’t much of a surprise to equities traders, as commission spend for the industry has be flat over the last few years. Large institutions are shifting trading volume to algorithmic avenues of execution as the overall commission pool remains flat, according to a recent Greenwich Associates study.

Greenwich Associates estimated that the annual pool of cash equity commissions paid by institutional investors to brokers on U.S. equity trades in 2016 to be $9.65 billion. This amount is down more than 30 percent from its peak in 2009.

“While that may seem like a dismal figure, it is important to note that the 2016 level is about 4 percent higher than the low of $9.3 billion reported in 2013,” says Richard Johnson, vice president of market structure and technology for Greenwich Associates.

According to the report, payments will be down across the board with professionals in investment banking underwriting, hedge fund and equities expected to see the biggest declines. 

The sole bright spot in the report was that retail and commercial banking professionals are projected to receive slightly larger bonuses compared with last year. These pros can expect an increase in payout – but a modest one at best. Johnson Associates forecast a 5% increase year-over-year.

“All signs are pointing to a disappointing end to an overall lackluster year on Wall Street,” said Alan Johnson, managing director of Johnson Associates. “The investment banking sector has struggled with weakened advisory and underwriting activity for much of the year, while most other business segments battled strong headwinds and a difficult market environment.  Any hopes for larger bonuses will have to wait at least another year.”

Hedge fund and equities professionals can expect to see their payments decline by as much as 15%, while payments to asset management and staff professionals will decline by 5 to 10%.  For equities traders alone, the firm forecast a drop of between 5%% to 15% from 2015 levels.

Say it ain’t so, Joe.

“Yeah, I’m feeling pretty lucky just to feel secure in my job here on the desk,” said a trader in New York. “While we are no longer cutting staff, the firm isn’t being particularly extravagant with year-end money. But again, look at this market.”

Another trader at a smaller brokerage in New York told Markets Media that while their bonus pool isn’t expanding, that metric wasn’t indicative of the firm’s health and strategy as some might infer.

“We’d rather hire and extra guy or two for the desk rather than pay out bigger bonuses,” the desk head said. “A lot of the larger firms are letting talent go – allowing us to pick up star talent and reinvest and grow our business. We’re expanding and that in the end is a better story for our firm and employees.”

While this last comment might be true for some firms, Johnson Associates said that next year’s compensation picture isn’t rosy, either.

“The financial services industry is facing another year of choppy waters, which could lead to a third straight year of smaller bonuses.  Faced with ongoing fee pressure, regulation and cost increases, the asset management sector is at an inflection point that will require aggressive business decisions to position itself for the future,” Johnson said. “ Firms will need to consistently reinforce performance expectations and follow through with differentiated compensation awards to attract and retain top talent,” said Johnson.

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