‘Tis the Season……… For Bonuses?
This time of year is always filled with joy, excitement, and great anticipation of the coming holidays. There is a special feeling attached to just about everything we do, from music, to decorations, to a general uplifting spirit that is very palpable highlighting just how different this time of year is. But year-end, also means the beginning of Bonus Season in Financial Services World! How will we fare this time around? Please read on for some insights to the 2023 Bonus Season.
During our Ramax Search Candidate & Client Engagement Survey, presented earlier this year, we asked the question “I anticipate that my 2023 total compensation will”…..
Across all segments of Financial Services, almost half of the responders anticipated increased compensation in 2023 compared to 2022. Based on early data, several studies and anecdotal information, it appears that unfortunately, that will likely not be the case. Yes, there will be segments with increased compensation, but with smaller gains than had been hoped for.
Production / Pay for Play roles will continue to get paid but perhaps more modestly than in past years and area of specialty will play a larger part in this year’s bonus structures than perhaps any time in recent memory. For example, Fortune Magazine anticipates that overall Wall Street investment bankers can expect bonuses to shrink 15%-25%. Investment bankers working in equity underwriting are projected to receive payouts that are 5% to 15% higher than last year, while wealth managers could receive awards that are 5% higher. Retail or commercial bankers working in large institutions could see year-end bonuses stay flat or rise about 10%.
Bonuses for investment bankers advising companies on mergers and acquisitions are expected to drop by 15% to 25% this year from 2022, according to a study by Johnson Associates, a compensation consultant in New York. Commercial and retail bankers at regional banks will receive bonuses that are 10% to 20% lower than the previous year, the report showed.
The Buy side offers mixed results as well, as Hedge Fund and Private Equity Firms will have very clear differences in payouts depending on sector. Credit, Distressed, Infrastructure, Energy focused firms should produce stronger numbers than firms in other sectors. The Technology sector seems to have been hit very hard, and compensation will reflect that. Within the private Markets space, 2023 proved to be a bit challenging following a global shift to higher interest rates and a thin deal-making environment that has hampered opportunities for firm growth.
Best “guesstimates” at this point indicate that variable compensation payments for most Wall Street support professionals (banks, hedge funds, private equity firms, asset managers, etc…) are expected to range from a decline of 10% to a modest 5% increase. Most will be flat. The exceptions will be in the hardest to fill roles (Legal, Compliance, & Risk Management).
2021 and 2022, were outstanding years for financial services growth, and the need to recruit timely reflected in an ultra-competitive talent market, pushing compensation to trend upwards. Now that the markets have slowed down a bit in 2023, we are seeing that high-caliber candidates perhaps cannot command the same compensation.
However, the tightening of the budget wallet, has not significantly slowed down hiring the past several months. Hiring interest has remained strong among the industry’s leading players, with over half having increased headcount over the last year. Of those surveyed, 58% had increased their headcount in 2023, while one-third had kept staff levels flat. Hiring has become more focused, and activity has shifted to deal focused teams and necessary corporate operations. Another trend that we are seeing is smaller players “picking off” the “underpaid” rising stars from firms that are not paying as well as they had traditionally.
While pure cash compensation may be flat, other compensation options that firms are exploring the inclusion of more long-term incentive plans that dovetail with forward-looking strategies, including real / phantom equity, deferred cash payouts, and staggering bonuses throughout the year. The trend for “ancillary” issues to make up for lost financial compensation is becoming increasingly more important, and we will continue to address that in a later post.
Wishing all a wonderful holiday season filled with health, happiness, and celebration!
