“People’s expectations go up a lot when their business goes up,” said Jolson, whose firm increased headcount to 231 as of Sept. 30 from 217 a year earlier and set aside 24% more to cover pay costs. “Revenue production is up, and they expect to be paid.”
Bonuses for equity traders and investment bankers probably will rise, offset by a drop in pay for fixed-income traders, said Michael Karp, CEO of New York-based recruitment firm Options Group. Rewards for equity employees may catch up to their fixed-income counterparts, reversing the trend of bond trading as the dominant business in recent years, he said.
Aggregate compensation for the industry may increase for the year as banks hired more compliance and legal staff, and as lower-tier firms boost pay, Karp said. That won’t translate to bigger bonus checks for the average worker at major banks.
“In general, people are expecting to get paid more than last year, but that’s not going to be the case,” Karp said. “It really depends on what area you’re in. Within firms, pay is going to be very divergent within groups.”
Senior employees who don’t generate revenue will be among those targeted for pay cuts, Dicks said. Banks’ top managers in corporate roles such as human resources and information technology historically earned more than their peers in other industries, he said. That gap is disappearing as banks are forced to rein in costs, he said.
Total pay for top bankers and traders in 2012 was about half that of 2007, according to an Options Group report last year. After markets tumbled in 2008, Wall Street drew criticism from investors, lawmakers, regulators and even its own leaders for rewarding employees too lavishly during market bubbles.
Former Goldman Sachs Chairman and CEO Henry Paulson, who was paid an $18.7 million cash bonus for his final six months of work on Wall Street in 2006, has said the industry bailouts he later orchestrated as U.S. Treasury secretary should encourage firms to exercise restraint.
“During benign periods, I think compensation levels on Wall Street are out of whack,” Paulson said in a 2010 interview conducted by billionaire Warren Buffett. “Restraint is very much in order by the top people.”
Goldman Sachs, Morgan Stanley and JPMorgan’s investment bank collectively reduced staff last year, allowing them to boost pay per employee even as the pool of money shrank. The three New York-based investment banks have reduced collective headcount by 337 this year through September, compared with 6,920 cuts in 2012.
With profitability remaining below pre-crisis levels, companies are seeking to return more capital to shareholders. The five banks paid out $12 billion through dividends and stock buybacks in the first half of this year, and already have surpassed their $13 billion total for all of 2012.
The moves helped drive the companies’ stocks higher. Morgan Stanley climbed 52% this year through yesterday, while Goldman Sachs and Citigroup rose 27% and 26% respectively. Bank of America advanced 22% and JPMorgan 20%.