Wall Street Bonus Pool to Grow as Bank Revenue Boosted by Rally

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a day ago

(Bloomberg) -- The outlook for Wall Street bonuses is improving, with payouts now set to rise across most sectors of the finance industry as the market rebounds.
After a tepid start to the year, investment bankers, hedge-fund employees and asset-management professionals are now poised to see higher year-end incentive pay in 2025, according to the latest report Tuesday from compensation consultant Johnson Associates Inc. That marks a turnaround from expectations set earlier in the year, when payouts were projected to decline in the wake of muted business activity amid a US trade war and geopolitical tensions.
'The year will end up broadly positive, which is a big change from what we were thinking three or four months ago,' Alan Johnson, managing director of Johnson Associates, said in an interview. 'Financial services have fared pretty well, and benefited in some cases from the volatility, and the up markets.'
The new forecast follows an upbeat second quarter on Wall Street, where traders saw record revenue as uncertainty around tariffs and tax policy drove a surge of activity across the stock market. That volatility has fueled demand for trading, potentially driving bonuses for equity traders up as much as 30% this year. Their fixed-income counterparts could also see an increase, though more modest at 10% to 20%, according to the report.
Optimism is growing in other corners of the finance industry as well. Investment bankers have started to see a pickup in mergers and acquisitions and other deal-related activity, which had been muted amid economic and geopolitical uncertainties. But the projected surge in M&A activity, spurred by a presidential administration seen as business-friendly, has yet to fully materialize. As a result, advisory-sector bonuses are set to rise no more than a modest 5% this year, but with a 'strong pipeline' of deals to come, Johnson Associates said in its report.
'Deals take months to close, so that will push it into next year,' Alan Johnson said.
Corporate clients have also pulled back on stock sales amid the equity-market volatility. Bankers who help companies raise equity are likely to see bonuses that are flat to down 5%, while their counterparts in debt underwriting could see their payouts rise 10% to 15% as 'debt issuance trends higher as firms seek refinancing,' according to the report.
Demand for wealth-management services could also see advisers' payouts rise as much as 5%, according to Johnson Associates. Similarly, those working in asset management could see an uptick of 2.5% to 7.5% as the market recovers from early second-quarter declines and margin pressures continue.
Last year, Wall Street bonuses jumped across the board, with the total pool for payouts rising to a record $47.5 billion as industry profits soared, according to estimates by New York State Comptroller Thomas DiNapoli. The average annual bonus rose by almost a third, to $244,700, the first significant increase since the Covid-19 pandemic.
With almost half of 2025 left to go, full-year forecasts could change — especially if the market dips, tariff negotiations go south or questions around the Federal Reserve's path toward lower interest rates go unanswered.
Some businesses will be more affected by uncertainty than others, including retail and commercial banking. Employees in those fields could see their bonuses unchanged to down 5%, with worsening consumer credit scores and slowing loan demand putting pressure on their business, Johnson Associates said. Professionals in private equity and venture capital also face their own challenges amid a difficult fundraising environment, markdowns of assets and money sitting on the sidelines.
Finance firms are also focused on managing their expenses, with artificial intelligence helping drive efficiencies, prompting increased scrutiny of staffing and compensation structures, Alan Johnson said. As automation accelerates, firms are reevaluating how and where talent is deployed across their companies, he said.
'In the short term, it's going to reduce headcount: 'We're not going to need 10 analysts, we're going to need five,'' he said. 'It will lead to efficiencies. And the people who remain will be paid even more.'
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