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Wall Street Bonuses Rose In 2012

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 by State Comptroller Thomas P. DiNapoli.

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.

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

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