Financial-services workers are bracing for an icy dive into a shallow year-end bonus pool.
Employees at big Wall Street firms could see annual compensation sink 27% to 30% from a year earlier to the lowest level since the 2008 financial crisis, according to a closely watched compensation study due out Monday.
Bonuses, which constitute a substantial part of many finance workers' pay, are on track to plunge 35% to 40%, on average, according to the forecast by Options Group, an executive search and consulting firm. Pay is likely to be hardest hit in areas such as fixed income, which comprises trading in bonds, currencies and commodities.
An investment-grade-bond trader who is a managing director at a top securities firm is likely to make $1.7 million to $1.8 million in 2011, according to the study. That is down from $2.9 million, said Options Group managing partner Michael Karp. The company compiles its annual report using surveys of industry professionals and conversations with executives.
At Goldman Sachs Group Inc. and Credit Suisse Group AG, bankers and traders expect year-end bonuses to be far lower than they have been in the past two years because revenues are sharply down, with clients doing little trading and few deals. Both firms have been cutting costs and laying off staff, as have many rivals. Goldman and Credit Suisse declined to comment.
The dour holiday mood is the latest manifestation of the sharp decline in profits at big banks and securities firms, which have been hit by a soft economy, new regulations and increasing investor risk-aversion. The Wall Street downshift "has created an environment where firms pay their employees less to do more," the Options Group survey concludes.
Just two years ago, a whirlwind of fixed-income trading was driving record profits for Wall Street firms. But companies that rang up big gains in that area have been hammered this year as traders moved to the sidelines with the U.S. economic rebound flattening out and Europe's debt crisis escalating.
Compensation declines will be broad-based. In equities, pay is expected to shrink 29% from a year earlier, while investment bankers are expected to take a 14% haircut.
The only group likely to hear good news on the pay front will be wealth-management employees, who could see compensation climb as much as 8%, due to higher assets and greater market share among the major brokerage firms.
With many firms trying to reduce pay by cutting highly paid staff, business students intent on a Wall Street career are continuing to find opportunities, although some schools are reporting a slowdown in interviews and less-robust hiring than before the 2008 crisis.
"There doesn't seem to be the retraction anticipated with the volatility in the markets," said Mark Brostoff, director of the career center at the Olin School of Business at Washington University in St. Louis.
Robert Park, executive director of corporate relations and career management at the University of Rochester's Simon Graduate School of Business, said the financial sector is still hiring, but activity is tepid.
The school held an interviewing event in New York City in September, and while it was well-attended by companies in general, just 20% to 30% of the financial-services firms that usually attend showed up—and even those that did had fewer job opportunities. He expects similar attendance when the school holds its next interviews in January.
Wall Street's belt-tightening could also throw sand in the gears of local economies that lean heavily on the banking and securities industries for high-income jobs. "This isn't a happy problem for New York City," said Karp. of Options Group.
This story originally appeared on WSJ.com.Liz Rappaport
contributed to this article.