Surprise: Wall Street Bonuses Weather Economic Storm
Despite headlines of layoffs and plummeting profits, $33.7 billion given out in 2022 bonuses reflects a modest decline and growing workforce.
Despite financial industry layoffs and a banking crisis that has already cost New York one major lender, Wall Street remains in far better shape than many expected.
Total bonuses for 2022 are estimated to have declined by 21% to $33.7 billion, state comptroller Tom DiNapoli announced Thursday — about the same as before the pandemic. Revised employment figures show that securities employment in the city rebounded to 190,800 people last year, the highest in two decades.
“The numbers are not bad, given expectations,” said Rahul Jain, the deputy state comptroller for New York City issues. “A return to pre-pandemic levels is not bad.”
The relatively small decline in the bonus pool surprised most experts because Wall Street profits declined by 56% in 2022 and the industry coped with extraordinary volatility.
The stock market fell for much of the year and the Federal Reserve Board’s move to raise interest rates both increased securities firms’ borrowing costs and dampened lucrative activity arranging initial public offerings and mergers and acquisitions.
Despite those headwinds, the $33.7 billion bonus pool was the highest of the last decade except for 2020 and 2021, when the stock market boomed during the pandemic and Wall Street profits soared.
The average bonus last year was $176,700 — by itself higher than the citywide average household annual income of $113,315.
The increase of almost 10,000 jobs in 2022 despite headline-grabbing layoffs— including the largest in years at industry leader Goldman Sachs — also was unexpected.
The key driver of the gains was the expansion of wealth management, which is one of the least volatile sectors since it is based on a set annual percentage (usually 1% or 2%) of the money being managed.
Since the advent of the pandemic, the segment has added 11,000 jobs, the third-most of any industry, since the pandemic began, according to New School economist James Parrott. Only home health care and individual and family services have added more positions in that time period.
Because of the industry’s sky-high salaries, which average more than $400,000, the state gets 22% of its tax revenue from Wall Street, which also accounts for 8% of all city collections. The decline in bonuses will cost the state $457 million and the city $208 million in taxes, the comptroller said. Budgets for both the state and city had already anticipated the drop.
Nevertheless, the outlook for 2023 remains worrisome.
Jain said he remains cautious about 2023. The bank crisis and rising interest rates could lead banks to impose more stringent requirements for loans, which is likely to hurt the economy and key Wall Street businesses.
And one should not discount the many anecdotes about financial institutions and wealthy New Yorkers locating to states with lower taxes and lower costs like Florida, added Kathryn Wylde, president and CEO of the Partnership for New York City.
“New York’s high personal income and estate taxes impact Wall Street more than any other sector,” Wylde said. “It is also an industry that quite easily accommodates remote work, suggesting that we have reason to fear a growing exodus of these high earners. It takes a few years to change your residence for tax purposes, but the trend is definitely underway.”