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Wall Street bonuses fall 9% in 2015, 4,500 new jobs added
Capital Markets, Lifestyle
Editors note: The New York State Comptroller released its annual review of the Wall Street job situation for 2015. Bonuses were down but the employment base widened for the second year in a row — the first time that has happened since the economic collapse in 2008. Overall, Wall Street does not hold nearly as influential position in New York City as it did pre-crisis.
The average bonus paid in New York City’s security industry declined by 9 percent to $146,200 in 2015 as industry-wide profits declined by 10.5 percent, according to an estimate released today by New York State Comptroller Thomas P. DiNapoli.
“Wall Street bonuses and profits fell in 2015, reflecting a challenging year in the financial markets,” DiNapoli said. “While the cost of legal settlements appears to be easing, ongoing weaknesses in the global economy and market volatility may dampen profits in 2016. Both the state and city budgets depend heavily on the securities industry and lower profits could mean fewer industry jobs and less tax revenue.”
The securities industry reported that pre-tax profits for the broker/dealer operations of New York Stock Exchange (NYSE) member firms—the traditional measure of industry profitability—declined by nearly $1.7 billion to $14.3 billion in 2015. After a strong first half and a solid third quarter, the industry reported a small loss of $177 million in the fourth quarter, the first quarterly loss since 2011.
Even though expenses were lower in 2015, profits declined because revenues were weak, particularly from trading and underwriting. Profits declined for the third consecutive year, reaching the lowest reported level since 2011.
Although industry-wide profits were down, employment in the securities industry in New York City grew by 2.7 percent in 2015, averaging 172,400 jobs for the year. The industry added 4,500 jobs, compared with 2,400 jobs added in 2014. This marks the first time since the financial crisis that the industry in New York City has added jobs for two years in a row. Despite the job gains, the industry is still 8 percent smaller than before the financial crisis.
It remains to be seen, however, whether the recent job gains can be sustained in 2016 given the weakness in the global economy and financial markets, and increased provisions for bad loans related to the energy sector. A number of large financial firms have already announced plans to reduce costs to improve profitability, which could lead to fewer employees in New York City and smaller bonuses next year.
DiNapoli’s office releases an annual estimate of 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, which do not distinguish between cash bonuses for the current year and compensation deferred from prior years. The estimate does not include stock options or other forms of deferred compensation for which taxes have not been withheld.
DiNapoli also reported that:
- The 2015 bonus pool for securities industry employees who work in New York City declined by 6 percent to $25 billion during the traditional December-March bonus season. The Comptroller’s estimate includes cash bonuses for the current year and bonuses deferred from prior years that have been cashed in;
- The average bonus declined by 9 percent in New York City to $146,200 in 2015. The decline in the average bonus was larger than the decline in the total bonus pool because the pool was shared among a larger number of employees than last year. Despite the decline, the average bonus in 2015 was slightly larger than the average of the seven prior years (adjusted for inflation);
- The securities industry does not separately disaggregate legal settlement costs from other noncompensation expenses, but noncompensation expenses (excluding rent, communication costs and other major operational expenses) declined by 6 percent in 2015, the first decline in five years. This suggests the cost of legal settlements is beginning to ease. The decline comes after costs climbed by 83 percent between 2008 and 2014.
- The average salary (including bonuses) for securities industry employees in New York City rose 14 percent in 2014 to $404,800, setting a new record (data are not yet available for 2015). This was nearly six times higher than salaries in the rest of the City’s private sector ($72,300);
- Although the securities industry is smaller, it is still one of New York City’s most powerful economic engines. The industry accounted for 22 percent of all private sector wages paid in New York City in 2014 even though it accounted for less than 5 percent of the City’s private sector jobs. An estimated 1 in 9 jobs in the city are either directly or indirectly associated with the securities industry;
- Unlike in prior economic recoveries, the securities industry has not been a driving force in the current jobs recovery in New York City. So far, the industry has accounted for less than 1 percent of the private sector jobs added, compared with 10 percent during the two prior recoveries;
- Securities-related activities are a large contributor to state and city tax revenues. DiNapoli estimates that securities-related activities accounted for 7.5 percent ($3.8 billion) of all city tax revenue in city fiscal year 2015 and 17.5 percent ($12.5 billion) of state tax collections in State Fiscal Year (SFY) 2014-15. The state also expects to receive more than $8.5 billion in settlement payments from financial firms during SFY 2014-15 and SFY 2015-16; and
- The state recently lowered its forecast of the statewide bonus pool for the broader finance and insurance sector and now assumes a decline of 2.5 percent. Since the securities industry in New York City accounts for about three quarters of that bonus pool, state personal income tax collections from the city’s securities industry could be lower in the current state fiscal year. New York City’s budget also assumes a smaller decline in the bonus pool than forecast by DiNapoli.
Click here for a chart showing the Comptroller’s estimates of the bonus pool from 1986-2015.
Photo: Randy Lemoine