NEW YORK (Reuters) - Wall Street executives could be diving into a shallow bonus pool in 2008, according to a report from Johnson Associates compensation consultants.
As merger activity slows and banks write down billions of dollars of assets, bonuses for investment bankers and stock and bond traders could decline by at least 10 percent in 2008, while top executive bonuses could fall by as much as 35 percent, according to the report dated May 2.
The credit crisis will mostly affect bonuses for workers directly involved in trading and selling assets like subprime mortgage bonds, the report said.
Senior executives will likely face the biggest bonus cuts and may even find their pay linked to risk exposure, the report said. Banks may also implement what the report referred to as “clawbacks” — managers to pay back compensation money if certain results are not met, the report said.
Financial institutions have had more than $300 billion in write-downs and credit losses since the middle of 2007, leading to layoffs. In April, Wall Street companies announced over 23,000 layoffs, half of which came from Merrill Lynch MER.N and Citigroup (C.N).
The Johnson Associates report said investment bankers could see bonuses decrease percent 15 to 25 percent as a deal drought has slowed business.
Equity traders might fare a better as increased market volatility improves margins. Equity trading bonuses are predicted to drop off 10 percent to 15 percent, according to the report.
The reports estimated that cuts in bonuses for some fixed income traders could amount to more than 25 percent depending upon market conditions.
Job losses could affect some new hires out of college and graduate schools, and some companies might buy out contracts of recruits while others might push back start dates, the report said. It added that some current employees could be made to take positions overseas to keep their jobs.