Finance Job Cuts May Start After Second Quarter, Survey Says

The crisis in the eurozone is sending a chill through Wall Street, with the possibility of job cuts looming after the second quarter and the likelihood of further cuts in compensation this year, a new survey said.

According to its spring review, 14% of finance workers received no bonus in 2011, up from 6% in 2010, the Options Group, a New York-based global executive search and consulting firm, said in a news release. The survey polled 1,300 employees across all levels in fixed income, equities, investment banking, risk management and others.

With every day bringing new tensions between banks, governments and regulators in Europe and the overhanging worry that the euro may not survive in its current form as Europe's common currency, banks remain as nervous as in 2008 when the financial crisis first hit.

"Many banks are still in the process of restructuring their businesses, so I think both compensation and headcount have not found floors," said Michael Karp, managing partner at the Options Group. "If current global market conditions persist through the summer, we could see more layoffs by the fall."

The survey found that across most sectors in finance, between 40% and 50% of professionals received less compensation in 2011 than the year before. Those who did get increases were at the vice president-level or below.

People who work in fixed-income securitized products, such as mortgage-backed bonds, had their pay cut by between 50% and 75% last year compared to 2010. A trader who hypothetically earned $1 million in 2010 would have made between $500,000 and $250,000 last year. The years 2010 and 2009 broke records for trading volumes in securitized products and compensation was unusually high.

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We could see more layoffs by the fall

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Financial services workers also received a new mix of cash and shares for their annual compensation. People who received total compensation of $1 million had between 45% to 60% of it deferred. Those who earned $3 million and more had between 75% and 80% of it deferred.

"In these tough times no one is in a position to complain, senior or junior. The paradigm of the business is changing, so is compensation, and everyone needs to embrace this change," Karp said.

Karp expects bonuses will be down again in 2012. "Banks aren't in a position to know yet, but trading volumes have decreased in equities, there's not much activity in fixed income and investment banking activity remains muted," he said. "Combined with Europe being unsettled, all these factors would lead me to believe that, at this point, bonuses will decline this year."

Write to Julie Steinberg at julies@fins.com