Wall Street bankers may be disappointed in 2022 as big financial firms are expected to cut bonuses by as much as 40 percent due to a fall in bank profits, according to predictions by Alan Johnson of compensation consulting firm Johnson Associates.
In a May 5 report (pdf), Johnson explained that investment and commercial banking profits were down in 2022 compared to 2021, along with asset management incentives and private equity incentives. Hedge funds also remained flat.
“For the first time in decades, inflation has significant impact on real compensation outcomes,” the report stated.
Investment banking underwriters are expected to see the biggest hit, with bonuses declining by 35 to 40 percent. Underwriter bonuses in 2021 had surged by 35 percent amid an increase in mergers and acquisitions, so the decline will take bonuses back to 2020 levels.
Investment banking advisory participants are expected to take a 15 to 20 percent hit on bonuses. Hedge funds and mega private equity funds are predicted to keep their bonuses flat, while bonuses for workers at midsize to large private equity firms, asset management professionals, and those working with high net worth clients are expected to decline.
Incentives for those employed in firm management, corporate staff, and retail and commercial banking are also estimated to fall.
On the positive side, professionals working in equities might see a 5 to 10 percent growth in bonuses, while those dealing with fixed incomes may see incentives surge by 15 to 20 percent.
According to data from the New York State Comptroller, 2021 was a lucrative year for Wall Street financiers, with bonuses in the securities industry reaching an average of $257,500.
One of the key issues in 2022 will be “incentive divergences,” which will pose challenges in recruiting and retaining talent at asset management and investment banking firms, the report stated.
Employers are expected to have a difficult year in 2022 as they deal with the negative impact of lower incentives, high inflation, and a return to office after the pandemic, the report continued. The “war for talent” will slow down and headcount is likely to remain flat or decrease as firms look to control expenses.