Bank executive bonuses go from boom to bust in 2022

Investment bank executives in New York and London are bracing for a year-end bonus that is expected to be 30% to 50% lower, while some could be left with nothing as business slumps and economic pessimism takes hold over the sector.

Executives will face disappointment when their bonuses come in the first quarter and thousands more colleagues could be laid off after hundreds were cut this year, according to recruiters and compensation experts.

Last year, the sector distributed the highest premiums since 2006 due to the recovery of the economy from the effects of the pandemic.

But this year, the pace of mergers and acquisitions and equity offerings has slowed dramatically as debt markets collapsed and stock market volatility hurt company values. The prospects of a recession also increased throughout the year due to the increase in interest rates promoted by the Federal Reserve to combat inflation.

For Goldman Sachs executives in the United States, tough times could translate into a 40% to 45% decline in average pay for 2022, according to data provided to Reuters by Sheffield Haworth, a top executive recruitment firm.

At rival Morgan Stanley, the average pay of top executives is expected to drop by 35% to 40%, according to the report by Julian Bell, president of Sheffield Haworth for the Americas.

At JPMorgan Chase, average total compensation for managing directors in the United States could decline by 35% to 40%, and pay for senior executives at Citigroup and Bank of America is likely to shrink by about 35% and 30%, respectively, from according to Sheffield Haworth.

While estimates reflect averages, payments can vary widely depending on individual and group performance.

The banks declined to comment.

Wall Street bank directors typically earn salaries of $350,000 (R$1.8 million) to $600,000 (R$3.1 million) a year, with bonuses of one or two times the base salary, according to Wall Street Prep, a company that helps aspiring investment banking executives break into the industry. For top performers, incentive pay can run into the millions of dollars.

The wage drop coincides with a 66% decline in equity offerings around the world this year compared with 2021, or $517 billion (R$2.7 trillion) in deal value, according to data from Dealogic. The total value of mergers and acquisitions fell 37%, to US$ 3.66 trillion (R$ 19 trillion) until December 20, after reaching an all-time record of US$ 5.9 trillion (R$ 30.6 trillion) in the last year, the data showed.

Fixed income, currency and commodity (FICC) traders outperformed their investment banking counterparts. Compensation for FICC traders is likely to rise slightly or remain flat, said Sheffield Haworth’s Bell, while equities traders could see a slight dip.

Barclays’ FICC operators doubled their revenues in the third quarter compared to last year, a bright spot that helped the bank beat expectations despite rising costs elsewhere, according to its October results.

In the UK, most big companies are discussing and allocating bonuses now, with decisions usually not announced until early next year. Barclays and HSBC have already started cutting staff in underperforming areas of investment banking.

“We expect bonuses to be reduced from last year, and there will be no bonuses at some institutions,” said Sophie Scholes, partner at leadership consultancy Heidrick & Struggles in London.