Compensation consultant Johnson Associates predicts a sharp decline in year-end incentive compensation across the financial services industry.
Incentive compensation for traditional asset management has fallen significantly following the decline in stocks and bonds in 2022. Compared to 2021, the company expects bonuses to fall by around 20-25% this year.
The pressure on the asset management segment is evidenced by a decline in assets under management due to market sell-offs, outflows in active equity strategies, a remarkable level of correlation between bond and equity markets, all both down sharply in the wake of interest rate hikes and the development of alternative and technology platforms.
In the alternative investment sector, private equity and hedge fund incentive compensation fell as exits put pressure on hedge funds, large private equity funds fell slightly and fundraising and private equity and venture capital deals have slowed significantly from a rapid pace in 2021, the company reports.
Bonuses are expected to fall by 15% to 20% in hedge funds, the company wrote, although this may not be the case for all hedge funds. The outperformance of macro-strategy hedge funds in 2022 led Johnson Associates to predict that incentive compensation for macro-strategies will increase by 10% to 20% from 2021.
In investment and commercial banking, incentives are down as profits have fallen from 2021 levels. Drastic declines in valuations have caused a pause in new IPOs and led to increased provisions for losses on receivables. Through 2023, hiring slowdowns and workforce reductions loom, as geopolitical, inflationary and recessionary risks persist.
Company management and staff will see their bonuses drop by 20-30% from 2021, the report said, due to mixed performance across business lines and falling profits.
In 2022, there is only one bright spot for incentive compensation: sales and trades, especially fixed income securities. Members of this segment can expect a 15-20% increase over last year as market volatility has led to increased customer activity.
The biggest year-over-year change in incentive compensation is for underwriters in investment banking, executive and staff positions, and those in asset management.
“Most Wall Street professionals will be quite disappointed and surprised when they receive their year-end bonuses,” Alan Johnson, managing director of Johnson Associates, said in a statement.
Across financial services, base salaries increased by 4% to 5% for the second consecutive year in 2022 .
Johnson Associates warned that an uncertain future environment looms, and the report states that “2022 year-end compensation decisions should consider a two-year lagsmany companies are reducing their hiring plans and some [will conduct] layoffs as business results decline and cost-cutting pressures increase.
Bill seeks to close ‘loophole’ in private equity compensation
New York expects a ‘sharp drop’ in Wall Street bonuses
Private equity firms expect a wave of mergers and acquisitions in the second half of 2021
Tags: Alan Johnson, Asset Management, compensation, financial services, Hedge Fund, Investment Banking, Johnson Associates, Private Equity, Wall Street Bonuses, Year-End Bonuses