85% of U.S. employers are doling out performance-based bonuses in 2018. In financial industries, bonuses are expected to be especially hearty.

Some financial professionals factor in bonuses as part of their salaries, while others wait until they are compensated before checking out that new car.

According to Joseph Perillo, Executive Vice President and Chief Financial Officer of Patriot National Bankcorp, “year-end bonuses are an important part of compensation in most corporations. Bonuses vary widely depending on the level of the employee and the company, and can range from 5% of salary to as much as 2 or 3 times base compensation.

Most bonus payments are based upon a combination of individual performance and company performance, and are compared with objectives set at the beginning of the year. Additional bonus payments can be earned for exceptional achievements.”

Katie Miller, former controller at Monarch Alternative Capital, adds that “it is important for employees to understand that bonuses are not guaranteed, except in certain specific circumstances where a contract has been signed. They should not be relied on as a consistent source of income from year to year.”

What’s happening with year-end bonuses in 2018? Let’s take a look.

Bonus Patterns

There are a number of financial arenas in which year-end bonuses are a significant portion of employees’ salaries. For those working at asset management and related firms, for example, it is an estimated 48% of pre-tax, pre-incentive income.

The factual change in bonuses from year to year depends upon changes in job titles, promotions, new hires, and replacement hires. And it is, of course, dependent on the overall success of the company employees are contributing to.

Bonuses reflect how well an individual is doing in relation to their manager’s expectations, as well as the ability of your team to meet predetermined targets. Lately, the meeting of non-financial targets such as market share or customer satisfaction has played into bonus decisions.

Bonuses are designed to be motivational. They reward employees for fulfilling their responsibilities and delivering excellent results.

Incentive programs are built around realistic expectations for the company itself. Participants usually expect to meet the minimum acceptable performance. They expect to receive a bonus payment 90% of the time and achieve target performance or better 60% of the time.

In most industries, target bonuses are similar and depend upon salary.

Equity Trading

The job of a trader is to find low-risk, high-investment opportunities in the market. They analyze balance sheets, income statements, cash flow statements, retained earnings, and historical data so they can take advantage of stock fluctuations with various companies.

There is expected to be a serious surge in year-end bonuses this year on Wall Street, particularly in the area of equity trading. They are expected to see a bonus of 20%, a big increase from the 5% expected for 2017.

Equity traders trade common stocks in publicly-owned companies. The average wall-street bonus rose 1% to $138,210 last year.

Private Equity Professionals

This year, private equity professionals benefited from inflows from sales, financing, and investments. They are expecting a 20% increase in bonuses over 2017 totals.

Private equity professionals are in the business of buying and selling companies. They spend their time raising money from international investors such as pension funds, banks, insurance companies, and high net-worth individuals. They source markets, make investments, and ultimately sell off companies.

The equity capital market encompasses the stock market but also reaches beyond it to include IPO’s, private placements, and marketing and distribution.

Equity Capital

Equity capital markets can also expect a 5-10% bonus bump. These professionals provide advice to investors on equity and equity-linked projects, such as shares, futures, and swaps. Equity capital markets help companies raise equity where stocks are traded.

Those working in private equity can expect a similar bump of 5-10% due to an increase in earnings.

Investment Banking Underwriters

The salary for investment banking underwriters is also expected to climb from 5-10%. These professionals raise investment capital on behalf of the government or corporations issuing debts or securities.

Hedge Funds

The bonuses for hedge funds held steady at 5%. Hedge fund professionals manage the investment capital of investors who use high-risk methods of investing in the hopes of larger financial gains.

Compliance

Compliance is an area where bonuses remain relatively steady. Even in a difficult economy, firms need professionals who can oversee legal and regulatory functions to ensure that they are not doing anything illegal.

Compliance officers and analysts receive rewards across a range of areas. They are usually steady enough to keep employees in their current jobs.

Banking

Bonuses in banking reward employee performance that has increased the profit of the bank or business, as shown by annual reports. They are expected to climb up to 5% this year.

What’s Ahead

Bonuses in 2019 may not be as strong. Experts are predicting a downsizing in the first quarter due to increase automation. There is also a downward pressure on financial services fees, known as fee compression, that could affect bonuses.

The geopolitical climate and greater reliance on technology are predicted to play a role. There may also be some headcount reductions in the year ahead. Base salaries, however, are predicted to climb steadily by 4-5%.

The Bonus of a Year-End Bonus

While you should not count on your year-end bonus remaining static from year-to-year, they will continue to be a significant incentive in a healthy economy. In 2018, equity training, private equity professionals, and underwriters were the big winners. In 2019, your bonus may take a hit, but there is reason to believe your annual salary will increase.

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