NEW YORK STATE COMPTROLLER DiNAPOLI: WALL STREET BONUSES AND PROFITS UP SLIGHTLY IN 2019, BUT FACING SHARP FALL IN 2020

The average bonus paid to employees in New York City’s securities industry increased by 3 percent in 2019 to $164,100, but it is likely to fall sharply in 2020 as the coronavirus crisis strains industry profitability, according to annual estimates released this week by New York State Comptroller Thomas P. DiNapoli.

“The securities industry had a good year in 2019, but the serious damage that COVID-19 is inflicting on financial markets and the global economy will sharply reduce industry profits this year,” DiNapoli said. “The securities industry is integral to New York state’s and New York City’s economies, as a source of tax revenue and job creator in other industries. The state and the city need to prepare for the severe budgetary implications of the coronavirus crisis.”

The securities industry accounts for one-fifth of private sector wages in New York City, even though it is less than 5 percent of private sector employment. DiNapoli estimates that nearly 1 in 10 jobs in the city are either directly or indirectly associated with the securities industry.

As a major source of revenue, DiNapoli estimates that the securities industry accounted for 17 percent ($13.2 billion) of state tax collections in state fiscal year (SFY) 2019 and 6 percent ($3.7 billion) of city tax collections in city fiscal year (CFY) 2019.

After a 12 percent drop in 2018, DiNapoli estimates that the 2019 bonus pool for New York City securities industry workers increased by 3 percent to $29.3 billion during the traditional December-March bonus season. Bonuses fell by 33 percent in 2001 after 9/11 and by 47 percent in 2008 after the financial crisis. Bonuses have fallen four times since 2008, with an average decline of 12 percent.

Pretax profits in 2019 for the broker/dealer operations of New York Stock Exchange member firms (the traditional measure of securities industry profits) increased by 2.8 percent to $28.1 billion. It was the fourth consecutive year of growth in profits, which have nearly doubled since 2015. Recessions and economic shocks have historically damaged industry profitability, dimming the prospects for 2020. After 9/11, profits fell by 50 percent in 2001.

In 2019, employment in New York City’s securities industry increased by 2,100 jobs to 182,100. The industry has added jobs in five of the past six years, increasing employment by a net total of 16,200 jobs during this period. Nonetheless, securities industry employment is still 4 percent smaller than before the 2008 financial crisis. In response to the financial crisis, the securities industry eliminated 22,700 jobs in the city before job growth resumed.

DiNapoli’s office releases an annual estimate of bonuses paid during the traditional December through March bonus season to securities industry employees who work in New York City. Bonuses paid by firms to their employees located outside of New York City (whether in domestic or international locations) are not included. The Comptroller’s estimate is based on personal income tax withholding trends and includes cash bonuses for the current year and bonuses deferred from prior years that have been cashed in. The estimate does not include stock options or other forms of deferred compensation for which taxes have not been withheld.

DiNapoli also reported:

The Governor’s proposed budget had assumed that statewide bonuses for the broader finance and insurance sector would decline by 1.7 percent in SFY 2020 (ending March 31). Since the city’s securities industry makes up about three-quarters of the statewide bonus pool for finance and insurance, state tax collections from bonuses are likely to be higher than anticipated for the current fiscal year. The Executive budget had assumed that bonuses will increase by 3.3 percent in SFY 2021, but DiNapoli now expects a sharp decline.
New York City’s budget for CFY 2020 assumes that the bonus pool for securities industry employees in the city will increase by less than 1 percent in 2019. Based on DiNapoli’s estimate, tax revenue from securities industry bonuses could slightly exceed the city’s expectations. The city’s financial plan for next year assumes securities industry bonuses will increase by 3.3 percent in 2020, but that is unlikely given current developments.
The average salary (including bonuses) in the city’s securities industry declined by 5.6 percent to $398,700 in 2018 (the latest annual data available), yet it remained five times higher than the average in the rest of the private sector ($79,800). Nearly one-quarter (24 percent) of the industry’s employees in the city earned more than $250,000, compared with less than 3 percent in the rest of the city’s workforce.