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'

By Aaron Elstein and Andrew J. Hawkins

Feb 27, 2013 @ 9:58 am (Updated 12:30 pm) EST

wall street, fiscal cliff, bonus, investment bannking
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.)