Wall Street firms will be getting a more modest payday this year, though how long it lasts will be anyone's guess.
Executive paychecks at big financial firms are expected to come in around 30 percent smaller this year than they were in 2010, according to a recent report in the Wall Street Journal. The projections track with an overall expectation that quarterly earnings will prove underwhelming at some of the country's largest banks when they are reported in a few days.
That executives could suffer alongside lower-level employees would be a slight shift away from recent expectations. While pay reductions are in store for bankers and executives at all levels of the corporate ladder, according to a separate WSJ article, it's generally been the youngest and least-seasoned employees on Wall Street who have been most at risk for layoffs, and who stand to lose the most in salary and bonuses this time around.
And if history is any guide, this year's salary declines might only prove a temporary setback, as banker pay dipped in the immediate wake of the financial crisis but rebounded relatively quickly.
By any measure, the past year has been a rough one for the financial sector. The stock market was as volatile as any time in recent memory, with the looming eurozone crisis and the possibility of a U.S. sovereign credit downgrade keeping investors on the edge. Meanwhile, the Occupy Wall Street movement stoked populist anger at banks, and some of that antagonism spilled over into the political arena, where figures as prominent as President Barack Obama and Senate Majority Leader Harry Reid began using the activists' language to speak about the struggles of the middle class and the country's growing wealth disparity.
Amidst this unfriendly climate, many Wall Street firms have been seeing their balance sheets dwindle. Thomas DiNapoli, state comptroller for New York, recently estimated that the securities industry lost almost $3 billion in the third quarter of 2011 alone.
Smaller profits, in turn, point to smaller salaries and bonuses. Total banker compensation could be the lowest this year since 2008, when the financial system seized up, according to the WSJ. Many Goldman Sachs partners face a pay cut of 50 percent from last year, while bonuses at Morgan Stanley are forecast to be between 30 and 40 percent below 2010 levels. Some large firms are said to be considering pay freezes for their junior staffers, according to Bloomberg.
At the same time, Wall Street employees continue to do well compared to the rest of the country. The starting salary for a junior banker at a major financial firm is about $200,000 -- which is roughly 650 percent greater than the current median U.S. salary of $26,364. And The New York Times recently noted that even as bank profits have softened, compensation as a percentage of revenue appears to be climbing at many institutions, including Goldman Sachs and Morgan Stanley -- meaning that employees, usually executives and other higher-ups, are getting a bigger slice of the pie even as the size of the overall pie shrinks.