Cash bonuses paid to New York City securities industry employees are forecast to decline by 14 percent to $19.7 billion during this year’s bonus season, according to an estimate released by State Comptroller Thomas P. DiNapoli.
'Cash bonuses were down in 2011, reflecting a difficult year on Wall Street', DiNapoli said. 'Profits were down sharply and securities firms in New York City resumed downsizing in the second half of the year. The securities industry, which is a critical component of the economies of New York City and New York State, faces continued challenges as it works through the fallout from the financial crisis and adjusts to regulatory reforms'.
The Comptroller also estimates that profits for the broker/dealer operations of New York Stock Exchange member firms, the traditional measure of profitability for the securities industry, did not exceed $13.5 billion in 2011, which would be less than half of the $27.6 billion earned in 2010. This would be the second year in a row that profits dropped by more than half.
While the industry had a strong first half with profits of $12.6 billion, it lost $3 billion during the third quarter. Underlying profitability at the large firms was even weaker than reported because profits were boosted by accounting adjustments. The industry earned a record $61.4 billion in 2009 with the benefit of federal assistance after losing a record total of $53.9 billion over the course of 2007 and 2008.
While a number of large firms announced reductions in cash bonuses for 2011 (with several firms reporting reductions in the range of 20 to 30 percent), personal income tax collections indicate a smaller decline in the overall cash bonus pool. This is likely due to the payment of bonuses that had been deferred from earlier years. The increased use of deferred compensation should create a pipeline of bonuses that will be paid in future years, which will reduce volatility in industry tax payments.
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 New York City-based firms to their employees located outside of the 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 realized.
DiNapoli also reported that:
The securities industry in New York City has resumed downsizing. Between April 2011 and December 2011, the industry shed 4,300 jobs. During the financial crisis, the industry had lost 28,000 jobs, of which only 9,600 jobs had been recovered before losses resumed in April 2011.
The average cash bonus declined by 13 percent to $121,150 in 2011. The average bonus declined slightly less than the total cash bonus pool because the pool was shared among fewer workers than in 2010.
The average salary (including cash bonuses) in the securities industry in New York City grew by 16 percent to $361,180 in 2010, which was 5.5 times higher than the average salary in the rest of the private sector ($66,110). Data is not yet available for 2011.
Compensation consumed a greater share of net revenue in 2011. The member firms of the New York Stock Exchange devoted nearly 52 percent of their net revenue to compensation (e.g., salary and bonuses for their broker/dealer operations) during the first three quarters of 2011, compared with 47 percent in all of 2010 and 36 percent in 2009.
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 contribution to the City’s tax collections has declined from 13 percent of City tax revenues to less than 7 percent.
In 2010, the securities industry in New York City accounted for 23.5 percent of all wages paid in the private sector despite accounting for only 5.3 percent of all private sector jobs.
The decline in bonuses forecast by the Comptroller is consistent with the expectations in New York City’s budget but is not as great as the decline predicted by New York State for the broader finance industry, meaning revenues may be slightly higher than anticipated in the last quarter of the current state fiscal year.
image: © Antonio Morales García