Thanks to fiscal cliff, Wall Street pay higher in '12

Rising stock market, low rates kept funding costs for banks down, boosting bonuses; 'great work if you can get it'

Feb 27, 2013 @ 9:58 am

By Aaron Elstein and Andrew J. Hawkins

wall street, fiscal cliff, bonus, investment bannking
+ Zoom
For Wall Street, comp is all about the circumstance

All the fuss about the fiscal cliff — shorthand for the Bush and Obama administration tax breaks that expired last month — actually had one quite tangible effect: It resulted in higher bonuses for the Wall Street crowd.

For 2012, Wall Street bonuses were $20 billion, according to data released Tuesday by the New York state Comptroller's Office, an 8% increase over the previous year. The higher payouts reflect better business conditions for the fortunate investment bankers and traders who still have jobs in a shrinking industry. Securities industry profits tripled last year, to $23.9 billion, thanks to an improving stock market and continued rock-bottom interest rates from the Federal Reserve that have sharply reduced the funding costs of banks.

But the higher bonus payouts also demonstrate savvy financial planning by the tasseled-loafer set.

According to the comptroller's office, an estimated $2.5 billion of income — much of it thought to be bonus pay — was moved up to 2012 as New Yorkers anticipated higher income tax rates in 2013. Personal income tax withholding collections from all taxpayers in New York City were 15% higher for December 2012 than one year earlier, the comptroller's office said. That's a sign that some people were paid large sums late last year, just before tax rates went up for individuals earning $400,000 or more.

Wall Streeters enjoy some flexibility on the timing of their pay because much of it comes in the form of deferred cash or stock awards.

The average cash bonus paid on Wall Street was $121,900 last year, up from just $13,260 in 1989. It isn't clear what the average salary was, but in 2011 it reached $362,900, or 5.3 times more than the rest of the private sector.

"It's great work if you can get it," said state Comptroller Thomas DiNapoli at a news conference to release the report.

One reason the average bonus rose last year is that Wall Street has fewer mouths to feed. Headcount in New York shrank by 1,000 people in 2012 to about 170,000. The decline continued with JPMorgan Chase & Co. saying Tuesday it would let 4,000 go people as part of a $1 billion cost reduction. In total, about 20,000 fewer New Yorkers work on Wall Street than before the financial crisis.

"The good news is, certainly compared to last year, we're seeing a return to profitability" for the securities industry, Mr. DiNapoli said. "Our view of where we're headed in 2013 is you will no doubt see continued downsizing."

(Aaron Elstein is a senior reporter with sister publication Crain's New York Business. Andrew J. Hawkins is a reporter with CNYB.)

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

How T. Rowe Price is courting advisers

Managing editor Christina Nelson and senior columnist John Waggoner discuss the storied fund family and the ways it is aggressively moving into the financial adviser space.

Video Spotlight

The Search for Income

Sponsored by PGIM Investments

Recommended Video

Path to growth

Latest news & opinion

Trump rejects idea of new caps on 401(k) savings in tax plan

GOP reportedly had been considering reducing the cap on the annual amount workers can set aside for 401(k)s.

Finra's stats reveal an industry in decline

The broker-dealer regulator reports fewer entities under its watchful eye.

T. Rowe Price steps up its game to serve financial advisers

The Baltimore-based mutual fund giant is more aggressively targeting financial advisers with a beefed-up wholesale crew and placement on custodial platforms.

The most important tax changes for 2018

The Internal Revenue Service issued inflation adjustments to more than 50 tax provisions for 2018.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print