Wall Street bonuses set to soar as high as 35% in year-end rewards

Major financial institutions are preparing to boost end-of-year compensation packages significantly, marking the first widespread increase since 2021, according to Johnson Associates analysis.

Dive Brief:

• Financial sector employees are anticipated to receive year-end bonuses up to 35% larger than previous year's payouts, representing the first comprehensive increase across financial services since 2021, according to analysis and press materials from Johnson Associates, a New York City-based consultancy, shared with CFO Dive.The bonus landscape shows significant variation across financial sectors, with debt and bond underwriting professionals leading the pack at 25% to 35% increases over 2023, followed by equity underwriting at 15% to 25% gains. However, real estate finance professionals will see flat bonuses, while retail and commercial banking executives may face stagnant or declining bonuses up to 5%.While these enhanced payouts may create some upward pressure within financial services, they won't have direct implications for bonus pools in other sectors such as technology, according to Chris Connors, a principal at Johnson Associates. "The volatility in Wall Street bonuses far exceeds that of other industries," Connors explained via email, noting that "most other sectors maintain more predictable bonus structures."

Dive Insight:

While Wall Street bonuses often capture public imagination, they represent a crucial component of financial professionals' total compensation package. These end-of-year incentive payments, typically distributed in February, can significantly impact the financial well-being of industry professionals, as explained by Connors during an interview.

The compensation structure varies across organizational levels, with public firms rarely dispensing bonuses entirely in cash. Lower-earning employees generally receive more cash-based bonuses, while senior executives' packages include a larger proportion of deferred stock, typically vesting over three years. "The compensation structure follows a graduated scale - higher earners receive a greater percentage of their bonus in deferred equity," Connors noted.

To illustrate, Connors explained that a junior analyst earning $110,000 might receive a $40,000 all-cash bonus, while a senior executive with a $400,000 base salary could receive a $1 million bonus split between $600,000 in cash and the remainder in stock.

The upcoming presidential election outcome isn't expected to influence bonus pools, according to Connors, though continued market growth could positively impact assets under management and, consequently, bonus levels.

The financial services bonus landscape has faced headwinds over the past three years, primarily due to investors shifting from high-fee investment products to lower-fee passive vehicles like ETFs, partially offsetting market gains, Connors explained.Looking toward 2025, financial institutions are expressing optimism and seeking to maintain momentum in M&A activity, according to Johnson Associates' release. However, the focus on "headcount and efficiencies" remains paramount. The forecast draws from public data and interviews with over 80 financial firms, Connors confirmed.