A dismal year means Wall Street is about to take a big hit to its wallet.
As banks prepare to report fourth-quarter results and make final bonus decisions for 2011, total compensation is likely to be the lowest since 2008, when the financial crisis destroyed some firms and left many survivors on government life support.
While still lofty compared to the rest of the U.S., pay for some Wall Street workers will be the lowest in years, at a time when critics have been lashing out at what they deem excessive finance-industry compensation.
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At Goldman Sachs Group Inc., many of the roughly 400 partners can expect to see their 2011 pay cut at least in half from 2010, according to people familiar with the situation. Pay for some employees in the New York company’s fixed-income trading business will shrink by 60%, with some workers getting no bonus, these people said.
Morgan Stanley is expected to shrink bonuses for some investment bankers and traders by 30% to 40% from 2010, said people familiar with the matter.
Pay worries have been mounting up and down Wall Street for months amid lower trading revenue, languid deal-making, new regulations and anxiety about the global economy. Other pressures include weak financial-company stock prices and sour public sentiment that culminated in the Occupy Wall Street encampment in New York.
J.P. Morgan Chase & Co., one of the biggest banks, is set to report earnings Friday, followed next week by Goldman and other major banking firms.
For most of 2011, Wall Street executives offered few specifics about how the lackluster year would affect compensation, especially the large portion that will be paid out as bonuses in the coming weeks.
Each quarter the banks set aside a percentage of revenue for benefit costs. Through the first three quarters of 2011, total compensation and benefit costs at 34 publicly traded financial firms tracked by The Wall Street Journal were on pace for a record-high $172 billion. The calculation is based on the companies’ reported results and projections by analysts.
But industry observers expect that when all is said and done for the year, many firms will adjust their benefits costs sharply downward, partly to appease shareholders frustrated by soft profits.
If the companies apply the same ratio for 2011 as 2010, overall compensation and benefits for last year would be $159 billion for the 34 companies tracked by the Journal, the smallest total since 2008.
At Goldman, average compensation per employee would fall 10.7% to $385,000 for 2011 from $431,000 in 2010 if the New York company keeps its payout rate steady in the fourth quarter. In 2007, Goldman employees received an average of $661,000 each, and people throughout the firm are bracing for disappointment.