The largest investment banks paid out $142 billion in bonuses to their employees for 2021. The banks, including J.P. Morgan, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup, paid out $18 billion more in 2021.
This is an increase of nearly 15%, up from $124bn in 2020 and the highest levels seen since 2007.
At each bank, there was a jump in bonuses for 2021. J.P. Morgan increased compensation for their investment bankers and traders by 13%. J.P. Morgan’s chief, Jamie Dimon, received a pay rise of $3 million, meaning his salary reached $34.5 million in 2021.
Citigroup paid their employees $3 billion more than it did in 2021, despite a slight decrease in revenue. Morgan Stanley is also rumoured to be awarding bonuses of 20% to top deal-makers.
Bank of America is handing out bonuses to almost all of its employees for 2021. Around 97% of the bank’s employees qualify for this compensation.
Employees who earn $100 000 or less received one-off cash bonuses in 2020. However, Brian Moynihan, the CEO of Bank of America, announced that the bank’s stock awards program would open up to these employees for the first time.
As a result, Bank of America is awarding $1 billion worth of restricted stock to its employees for 2021. The bank confirmed that these stock awards were much higher than the cash bonuses that their employees received in previous years.
Goldman Sachs increased compensation by 33%, paying its bankers more than $17 billion in 2021. In fact, Goldman Sachs increased its employee’s wages the most compared to the other banks in 2021.
The average worker at Goldman Sachs took home around $403 000 last year, a 22.8% increase from roughly $328 000 in 2020. The bank also gave special stock bonuses to its partners in 2021.
With roughly 400 partners, this worked out at more than half a billion dollars. Goldman Sachs produced $59 billion in revenue in 2021, a record for the bank.
Why Did Bonuses Increase?
On Wall Street, pay is normally dependent on revenue. However, pay rose twice as fast as revenue in 2021. J.P. Morgan, for example, paid out compensation that amounted to 3 times as much as the extra revenue they made in 2021.
For the last 2 years, compensation has remained at 33% of revenue. In 2021, this increased to 35%. This means that employees, from bankers to engineers, took home an extra $9 billion. Ordinarily, this money would have gone back to shareholders or been invested in new technology for the banks.
For many bankers, 2021 was a more difficult year. Given their often unpredictable environment, top banks are often reluctant to increase staff. In 2021, with rises in both revenue and deal-making, this led to bankers being more stretched and considering different career options.
Competition from FinTech companies is also on the rise, due to the boom in cryptocurrencies. As a result, banks are having to fight to keep their best people.
Banks in both the US and the UK have been increasing both pay and bonuses in an effort to continue to offer competitive wages and keep the top talent. Deutsche Bank AG is also considering increasing its bonuses by 15% so that they do not lose their best bankers. Boosting bonuses is one way that banks can ensure talent is not lost to competitors.
However, there is still some apprehension for investment banks going into 2022. The US stock market is already facing uncertainty, with giant corporations such as Netflix and Twitter experiencing drops in their shares. Such significant spikes in pay and bonuses among the banks has also left some investors with concerns.
This uncertainty is reflected in the bonuses given out by some of the big investment banks. For example, Goldman Sachs chose to give their partners a special bonus for 2021, as opposed to increasing their stock-based awards.
If compensation is given in the form of bonuses, rather than an increase in average salary, the banks are not tied to this compensation. The banks can then reduce or alter these bonuses in the future – depending on revenue.
With record revenues and deal-making at a high, 2021 was a successful year for many investment banks. However, such an intense year has led to wage-inflation and competition among the top banks.
With the stock market also experiencing a shaky start to the year, there is no guarantee that bonuses will be as high for 2022.