Grygo is the chief content officer for FTF & FTF News.
Many Wall Street participants, including middle- and back-office teams, are getting ready to celebrate a variety of spring holidays with the added bonus of a real bonus for their efforts last year.
However, some may find that their bonuses have shrunk compared to last year.
What may be more disturbing, though, is that a prominent Wall Street recruiter warns that artificial intelligence (A.I.)-based systems could eliminate Ops jobs, arguably a greater worry than shrinking bonuses.
So, let’s start with the shrinking bonuses.
The average Wall Street bonus, based on performance in 2023, shrunk by two percent to $176,500, according to the Office of the New York State Comptroller (OSC), headed by Thomas P. DiNapoli.
“The $33.8 billion bonus pool for 2023, which closely matched the 2022 pool, was well below the 25 percent growth seen in 2020 ($37.1 billion) and the 15 percent jump seen in 2021 ($42.7 billion), but slightly over the pre-pandemic high of $32.1 billion,” according to the OSC.
In comparison, the average bonus last year was an average of $180,000. The OSC bases its estimates on the data it gathers from members of the New York Stock Exchange (NYSE), owned by the Intercontinental Exchange (ICE).
Photo by ThisisEngineering RAEng on Unsplash
Oddly enough, the labor pool for Wall Street grew by approximately 6,900 positions due to an ongoing recovery in equities, fixed income, private credit, and management fees, according to the OSC. At the same time, there have been layoffs at major firms.
The OSC does not break down bonuses by positions. “We use the aggregate bonus pool and aggregate employment to create the average,” the spokesperson tells FTF News. This includes bonuses for middle and back-office positions.
Overall, it’s a given that bonuses for Ops staff members will be lower than those in the front office.
“Front office traders are part of the revenue generation of the buy-side/sell-side and earn significantly more than back office staff,” Steve Fleming, CEO of WallStreetCareers.com confirms to FTF News. The back-office bonus pools tend to be less than those in the front office by 40 percent or more, Fleming says.
The upside is that back-office managers, overseeing operations, risk mitigation, IT systems, and so forth, can see benefits. “At the director/MD level, back-office employees earn six-figure salaries and a bonus,” Fleming says.
The more skills Ops staffers can develop the better, says Alan Johnson, managing director at Johnson Associates, Inc., a compensation consultancy. But there are a few trade-offs in the front-office realm.
“The demands obviously can also go up and the skills that are demanded often are more specialized and intensive,” Johnson says
What would be some of those skills?
“It could be technology people that are directly related to, say, trading. They work on the algorithms, the coding, and other things. You have very specialized risk individuals that are looking at portfolio construction and the balancing of risk and portfolios,” Johnson says.
In addition, attorneys can develop M&A and other specialized capabilities.
“There’ll be specialized finance people when it comes to funding positions, particularly in trading. There could be specialized tax people as well, specialized operations people that based on the nuances of a particular product or the quirks, they are experts in how those things are settled and accounted for,” he adds.
However, there will be more volatility with these career moves “because they’re primarily to generate revenue and profit. If they can’t do that, they don’t have jobs,” Johnson says.
Beyond the bottom line and the trade-offs, the specialized skills may come in handy when A.I.-based systems take over more general Ops tasks.
“I guess the support functions, whether they be back office or middle office … are now under increased threat from artificial intelligence,” Johnson says. “They obviously for years have been under threat from outsourcing.”
So, are Ops staff members’ jobs in jeopardy?
“Absolutely,” Johnson says.
Employment in the securities industry “has been pretty stable for a long time. And if you look at the volume of transactions, of course, they have gone up dramatically over the decades,” Johnson says. “So, the transactions per employee or per the industry has become remarkably more efficient on huge volumes.”
But as volumes peak, firms face cost pressures and regulatory requirements that “squeeze not only the revenue producers, but also support. How can you do it cheaper, better, faster, fewer people?”
Highly skilled, “driven people” will thrive in this new environment, Johnson says. “But, certainly, A.I. and the continuing outsourcing of jobs … are going to continue, probably accelerate.”
How do back-office folks survive?
“You must demonstrate that you’ve got skills that people really want and you’re a very good-to-great employee,” Johnson says. A little bit of luck wouldn’t hurt either.
“You can’t just assume that ‘I’ve been able to do this job for 10 years, the next 10 years are going to be just the same.’ And you got to say, ‘Wait a minute, I need to continue keeping my skills up.’ … If you’re an average employee, your skills are lagging a little bit, you’re going to be increasingly vulnerable,” Johnson says.
You might as well stay in the game and fight.
“Well, it’s been a great game. … It’s always been competitive and challenging and tough, and it is not going to get any easier,” he says.
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