Last year was a relatively rough year for IPOs. According to Renaissance Capital, IPOs in 2015 were down over 30% from their 2014 level.
The start of 2016 doesn’t appear to be offering any sort of relief anytime soon. The IPO market is in a deep freeze.
The question here is – what does the IPO slow down through at least the first half of 2016 mean for Wall Street bonus pay?
Here is a look.
Bonus Pay
First, here’s a look at the history of Wall Street bonus pay by year.
The hottest bonus year occurred in 2006 at about $34 billion, representing an average bonus of about $191,000.
Following 2006’s high mark, bonus pay has experienced some massive volatility, with the bottom occurring in 2008 at a low of $101,000.
Bonus pay has recently been on a downward trend after reaching a recent peak in 2013. Should 2016 see another drop in bonus pay, and it appears that’s likely to be the case, 2016 would make for the third consecutive year of dropping bonus pay.
The Connection
The previous section was simply speculation on what might happen to bonus pay in 2016. Here’s an empirical look (although this here is also really just speculation on what financial executives will do with their cash later in the year).
Does it look like there’s a connection? To the in-the-know, of course there’s a connection. By definition, in a direct manner, the IPO business is part of a certain financial firms’ bottom lines.
How strong is the connection?
A Scatterplot View
Here’s a scatterplot view and the linear regression correlation of IPOs with average Wall Street bonuses. Interestingly, the connection isn’t that strong. The correlation coefficient (measure of association) is $129. The $129 means that for every new IPO, the average Wall Street bonus rises by $129. The constant is $112,484.
Perhaps even more interesting that the simple linear correlation is which years saw average bonus pay come in higher than the IPO figures would predict.
Perhaps unsurprisingly, 2015 was an “outperform” year for average bonus pay. Average bonus pay came in at about $146,000. Given the weak IPO market in 2015, the model presented below would have predicted only $130,000.
Either way, it was good to be a financial professional working on Wall Street in 2015.
Conclusion
Overall, 2016 appears to be set for a very weak year for IPOs. The weak IPO picture affects lots of industries and individuals. Among the entities affected are financial professionals counting on bonus pay. This year has the potential to see another weak year for Wall Street bonus pay, possibly dropping for the third consecutive year after peaking in 2013 at about $28 billion.
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