Due to High-Interest-Rate-Driven M&A and IPO Drought... Wall Street's Bonuses Fell 2% Last Year

Average Bonus per Person $176,500
European Deutsche Bank and BNP Paribas Also Cut Bonuses by 5%

Due to a drought in mergers and acquisitions (M&A) and initial public offerings (IPO) caused by a decrease in market liquidity triggered by high interest rates, the average performance bonuses for Wall Street employees declined last year.

On the 19th (local time), Bloomberg News reported, citing the New York State Comptroller, that the average annual performance bonus per person on Wall Street in 2023 was $176,500 (approximately 236 million KRW), down 2% from the previous year. The average annual performance bonus for Wall Street employees peaked at $240,400 in 2021, then dropped to $180,000 in 2022, and decreased again to $176,500 last year.

The total industry-wide performance bonus amount was recorded at $33.8 billion last year, similar to the previous year. This is far below the $42.7 billion peak in 2021 when performance bonuses were at their highest.

The reduction in Wall Street bonuses is due to a significant contraction in M&A and IPO transactions over the past two years. The U.S. Federal Reserve (Fed) rapidly raised the benchmark interest rate from 0?0.25% in March 2022 to the current 5.25?5.5%, causing a sharp increase in capital raising costs. However, expectations are growing that the frozen capital markets will revive as the Fed has signaled interest rate cuts within the year.

Steady growth in Wall Street employment also influenced the decrease in average bonuses last year. The number of Wall Street employees increased by 3.6% from the previous year to 198,500, reaching the highest level in over 20 years. After rapidly increasing hiring due to a surge in trading following COVID-19, Wall Street began layoffs at the end of 2022, but overall employment still rose as hiring continued.

Thomas DiNapoli, New York State Comptroller, explained, "With ongoing market volatility and an increase in securities industry workers, the average Wall Street performance bonus decreased somewhat compared to last year."

European banks are also cutting employee performance bonuses due to a drought in capital market transactions. Germany's largest bank, Deutsche Bank, reduced its performance bonus pool by 5.5% last year compared to the previous year. BNP Paribas, the largest bank in the Eurozone (20 countries using the euro), also cut its performance bonus pool by about 5% last year.

According to consulting firm Bain & Company, the value of M&A deals completed in 2023 shrank by 20% to $3 billion compared to the previous year, marking the smallest scale since 2014. Corporate M&A declined by 14%, and private equity acquisitions dropped by as much as 35%.