Wall Street Bonuses Decline 8% in 2010, New York Comptroller DiNapoli Says

Cash bonuses on Wall Street declined 8 percent last year as financial firms raised base salaries and deferred some earnings, according to New York State Comptroller Thomas DiNapoli.

Financial companies disbursed $20.8 billion in 2010, compared with $22.5 billion a year earlier, DiNapoli’s office calculated in a report based on personal income-tax collections. It doesn’t include stock options or other types of deferred pay.

The average Wall Street employee took home a cash bonus of $128,530 in 2010, a drop of 9 percent that was greater than the total decline because the pool was shared among more workers. New York City’s securities industry added 3,600 people from August to December, the report said.

“Cash bonuses are down, but that’s not an indicator of a weakness on Wall Street,” DiNapoli said yesterday in a statement. Wall Street is changing its compensation practices in response to regulatory reforms adopted in the aftermath of the greatest financial meltdown since the Great Depression. Past practices rewarded short-term gains at the expense of long-term profitability.”

Mayor Michael Bloomberg said last week that an improving economy bolstered by Wall Street profits and record tourism will help generate about $2 billion of unanticipated revenue through mid-2012.

Profits at New York Stock Exchange firms’ broker-dealer units were the second-highest ever in 2010, at $27.6 billion, behind the $61.4 billion generated in 2009 by federal bailouts, interest-rate cuts and proprietary trading, DiNapoli said.

Cash Bonuses

Wall Street cash bonuses are up from $17.6 billion in 2008, which was about half the record level of $34.3 billion in 2006, the comptroller’s office said.

The size of the bonus pool has shifted as more firms pay a larger percentage in stock and deferred compensation.

“Almost everyone’s salaries have increased over the past couple years, so you’re seeing more cash all year, but at the end of the year you aren’t getting the big, fat cash check you used to,” said Michael Karp, chief executive officer of Options Group, an executive search and compensation consultant firm in New York.

Morgan Stanley, owner of the world’s largest brokerage, said last month the nine members of its operating committee will receive an average of more than 80 percent of their 2010 bonuses deferred. The average for all employees’ deferred pay rose to 60 percent from 40 percent in 2009, the company said in a Jan. 20 statement.

Deferred Compensation

“The industry’s greater emphasis on deferred compensation will hold down tax collections this year, but the state and the city will benefit in future years when taxes are paid on this,” DiNapoli said. “A more stable and less volatile securities industry is in the best interests of Wall Street, the city and the state.”

Before the financial crisis, Wall Street-related earnings accounted for as much as 20 percent of the state’s tax revenue. That amount has slid to about 13 percent, and to about 7 percent of New York City tax revenue, from 13 percent, DiNapoli said.

Soaring pay before the credit crisis pushed traders to disregard risk and motivated financial firms to use leverage to boost returns, the Financial Crisis Inquiry Commission wrote in a 545-page book outlining its findings.

Regulators including the Federal Deposit Insurance Corp. and the Federal Reserve are crafting rules that would require firms to spread at least half of top managers’ incentive pay, including stock and options, over three years. The awards may be cut during the deferral period, the multiagency proposal says.

The securities industry lost 30,700 jobs in New York City during the recession, a decline of 16 percent, or 3.5 times the rate of total job loss in the city, DiNapoli said.

The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.

To contact the reporter on this story: Henry Goldman in New York at hgoldman@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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