Last fall there was a widely reported study that forecast a 20-30% drop in Wall Street bonus compensation, potentially disrupting what has been a multi-year stable Manhattan housing market.
I did the maths back then with the available numbers and opined that the bonus drop would amount to 10% decline in compensation from a fairly high level.
I was close.
The NYS Comptroller released the official Wall Street bonus tally. The decline in compensation was closer to 14%.
One of the biggest question marks about compensation has to do with deferred compensation. If compensation is shifting away from cash, then arguably financial service sector employees would have less to spend on housing in the near term. The number being thrown out (20% to 30%) is a little less than 1/3 of total compensation. However the NYS Comptroller indicated that the actual share of deferred comp was probably smaller than generally thought because there were cash payouts from previous year’s deferred compensation.
Despite all the economic challenges, Wall Street seems to be trying to compensate its employees – industry profits fell 51.1%. (paid 5.5 times higher than the average private sector job – although employment has started to slide).
Stymied by regulatory requirements, the European debt crisis and a sluggish economic environment at home, the nation’s largest banks suffered in 2011…Despite the difficult environment, New York firms continued to pay roughly $20 billion in year-end cash compensation to their employees. The average bonus was $121,150, down just 13 per cent from the previous year as the headcount shrunk. In 2006, the year before the financial crisis, the average investment bank employee took home a bonus of $191,360.
With the modest decline in Wall Street compensation, this report is clearly better than anticipated, but it likely means housing prices in Manhattan won’t be seeing gains in 2012 and could even see modest declines.
Still, it’s better news than originally thought from the market’s key driver of housing demand.