Bankers, portfolio managers and others on Wall Street will be happy to learn they are on track to cash bigger bonus checks for their work in 2024.
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. The estimates are based on results at 10 asset management firms and eight major investment and commercial banks.
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. In addition to getting paid six-figure salaries, those percentage bumps could translate into millions of dollars for some employees.
Lump-sum awards paid to other professionals aren’t expected to expand at the same rate but could be nonetheless lucrative. Bonuses paid to hedge fund employees are estimated to increase 5 to 15 percent and other asset management professionals could see their year-end bonuses rise 5 to 10 percent. Again, for those already well-heeled investors, earning a bonus that is 10 percent larger or more than last year could mean the difference between paying cash for a new luxury car, or an extra week next summer at a posh rental in the Hamptons.
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. Competition for certain professionals is also a factor when it comes to compensation. Family offices and private equity firms continue to pay more to attract and retain top talent.
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.
Late last year, the consulting firm expected that 2023 bonuses would be down (they were) and said that managers should prepare for tough conversations with some disgruntled employees. But even after years like 2024 is anticipated to be — when bonuses will be significantly bigger — some employees are bound to be happy.
Every company, regardless of type or how well it is doing, does the same bonus exercise annually. After the month of August, the less-busy season of finance bookended by Labor Day weekend, company leaders start looking ahead and thinking about bonuses. Compensation is usually their biggest cost and can be a powerful tool. Generally, organizations don’t want to be over or under compensating anyone. But they also thoughtfully wield their discretion. 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.
The professionals anticipating a bonus should also remember that they aren’t guaranteed. 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.
