Following strong second-quarter results, professionals in almost all corners of finance are estimated to receive bonuses as much as 35 percent higher than they did last year, according to a report by Johnson Associates, the New York-based compensation consultancy. Investment bankers have the most to look forward to. Debt underwriters could get year-end bonuses that are 25 to 35 percent larger than those awarded in 2023. Equity underwriters could get between 20-30 percent more compared with last year.
Payouts to eligible employees at traditional and alternative asset managers aren’t growing at the same rate. Bonuses at traditional managers are estimated to be up 5 to 10 percent while those at alternative managers are likely to remain flat or be boosted 10 percent or more. Even though the S&P 500 has gained more than 12 percent this year, stock performance is not translating into bonus payouts like it did in the past.
The explanation is straightforward: Passive products and pressure on fees have made much of traditional asset management less lucrative. “There’s not that clear linkage that there was before,” Alan Johnson, founder of Johnson Associates, told Institutional Investor. Meanwhile, the fees charged by alternative managers — that Johnson and other observers years ago expected would eventually go down — have been “remarkably” stable, he said.
While bonuses are broadly up year-over-year, overall they were down in 2023 and inflation has been higher since then, Johnson explained. Not every professional can expect as big of a reward this year; commercial and retail banking bonuses are estimated to be flat or down slightly.
Firms are always weighing how much to reward top performers and other must-keep employees at the expense of others who could feel slighted. In some cases, they want to cause some attrition by sharing less of the spoils with personnel they decide they could do without, Johnson said.
Payouts for 2024 would be announced and paid out at the beginning of next year. A lot could happen between now and then.
“The second half of the year may be more volatile and uncertain. And while the recent stock market selloff won’t immediately offset the results already in the books, longer-term concerns such as employment, interest rates, and political developments could move the needle,” the report says.
Institutional Investor / August 8, 2024