If you worked as a financial advisor last year, you are well aware that securities industry compensation was one of the many victims of the financial collapse. But new data from David Belkin, senior economist at the nonpartisan New York City Independent Budget Office, suggests that a more game-changing dynamic was at work, at least as far as securities companies based in New York City are concerned.
It was bad enough that real average annual securities wages in New York City fell a jaw-dropping 21.5 percent, from $396,370 in 2008 to $311,279 to 2009 (those numbers reflect baseline salaries, cash bonuses, and exercised stock options.) Worse, that pay drop was the steepest in the city’s history, including compensation losses suffered during the Great Depression, Belkin said. For perhaps a more sobering context, consider the numbers as measured against the wage growth that preceded it.
Wall Street employees saw real average wages grow by $64,000 in 2000 through 2002, only to fall by about half that amount as the economy struggled from 2002 to 2003. In comparison, from 2006 through 2007 real average wages increased by about $100,000 and then gave back roughly that entire amount in the collapse from 2008 through 2009. “Perhaps what has happened in the past two years can be viewed as a correction to the entire era,” Belkin wrote on a blog post at the IBO site.
Andy Tasnady, a compensation consultant with Tasnady Associates of Port Washington, N.Y., says that last year’s securities compensation average may have been weighed down by decreases at the top end of the pay scale. “I wouldn’t be surprised if, for the bottom 80 percent of the population, their compensation is down by very small amounts, and maybe even up, because they didn’t have these superlarge bonuses in the first place. They may have been 80 percent salary, 20 percent bonus,” he says.
Like the volatility of the stock market, cycles of wage growth and collapse also characterize the city’s securities industry. From 1990 to 2009, New York City saw nine years of double-digit increases in real average wages and three years of double-digit decreases, Belkin says. Over the entire period, there was real average annual growth of 5.4 percent (by comparison, the average for employment sectors outside of finance was 1.6 percent.)
Compensation last year was hammered in a variety of ways. Belkin says New York Stock Exchange member firms saw record losses for 2008, which reduced bonuses that were mostly paid out in the first quarter of 2009. Wages as measured by the IBO include gains normally realized on stock options, but many options were well below their strike price last year. And the loss of 18,400 securities jobs in New York City last year dampened baseline salary growth. Securities workers weren’t the only ones hurt by the collapse. Belkin says the city saw the loss of $21.4 billion in wages and salaries; even adjusting for inflation, the loss was almost twice as big as in 2002. Among other things, it’s money the city counted on for tax revenue.
Registered Rep.’s annual survey of advisor compensation, published in our June issue, showed declines across nearly every channel. Hardest hit were registered investment advisory firms, which saw compensation drop nearly 34 percent to $212,500 (although the RIA channel remained the most remunerative of all the channels surveyed).
There are reasons to believe there are better days ahead for comp, Tasnaday says. “I think it’s going to stabilize. These firms are making money again…I would expect the bonus pool to go back up,” he says. A few of his friends who were out of work in the business have found new jobs. “I get the sense that there’s some targeted hiring now. I don’t think it’s waves and waves. The real issue is the bonus pool size. That’s what drives the compensation.”