Wall Street firms are deflating pay expectations to avoid a replay of last year when cutbacks on bonuses and increased deferrals surprised bankers and traders.
Those collecting awards may see payouts unchanged from last year or boosted by as much as 10%, compensation consultant Johnson Associates Inc. estimates. Decisions are being made as banks cut costs and firms including UBS AG (UBSN) and Nomura Holdings Inc. (8604) fire investment-bank staff.
Some employees were surprised as companies chopped average 2011 bonuses by as much as 30% and capped how much could be paid in cash. That experience, along with public statements from top executives, low trading volumes in the first half and a dearth of hiring has employees bracing for another lackluster year, consultants and recruiters said.
'A lot of senior managers won’t have to pay up because they’re saying, ‘Where are these guys going to go ?'' said Michael Karp, chief executive officer of New York-based Options Group. 'We’re in an environment where a lot of people are just happy to have a job. Expectations have been managed so low that people will be happy with what they get'.
More modest expectations reflect a new reality as total pay is about half what it was in 2007, Options Group said in a report last month. Firms are struggling to earn the returns shareholders demand amid higher capital requirements, a proprietary-trading ban and lower deal and trading volumes. Of the 10 largest global capital-markets firms, the only one trading at more than book value is UBS, which eclipsed that mark after pledging last month to shrink its investment bank by half.
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