Cash bonuses paid by Wall Street firms to their New York City employees declined by 44 percent in 2008 in response to record losses suffered by the securities industry, according to an estimate released by State Comptroller Thomas P. DiNapoli. DiNapoli noted that the federal Troubled Asset Relief Program, which infused billions of dollars into the financial system, helped prevent more institutions from failing. TARP placed restrictions on bonuses for top executives and many have voluntarily forgone bonuses, but it did not impose limitations for lower-level employees.
"A 44 percent decline in the bonus pool will ripple through the regional economy and the state and the city will lose major tax revenues," DiNapoli said in a press release. "The securities industry has already lost tens of thousands of jobs and the industry is still continuing to write off toxic assets. It's painfully obvious that 2009 will probably be another difficult year for the industry," he added.
"Taxpayers have invested billions of dollars to stabilize the nation's banks and financial institutions and there are plans to make additional investments to shore up the banking system. There needs to be greater transparency and accountability in the use of these funds. Every dime counts, especially when they're taxpayer dimes and taxpayers ought to know if these funds were used to buy corporate jets, pay dividends or bonuses," said DiNapoli in the release.
DiNapoli's office estimates that the bonus pool paid by the securities industry to its employees in New York City totaled $18.4 billion in 2008 based on personal income tax collections and other factors, including industry revenue and expense trends. This represents a decline of 44 percent compared with the $32.9 billion paid in 2007. The decline is the largest on record in absolute dollars and the largest percentage decline in more than 30 years, but the size of the bonus pool is still the sixth largest on record.
DiNapoli also estimated that the traditional broker/dealer operations of the member firms of the New York Stock Exchange lost more than $35 billion in 2008—more than three times the record loss in 2007. Industry losses were actually much greater when other business services, such as mergers and acquisitions, were factored in.