It might seem logical that salaries for many financial workers would have declined since the height of the boom in 2007. However, a survey of three financial professions closely linked to the crisis showed surprising results. Compensation for workers in real estate credit declined significantly as predicted, however portfolio managers saw only a slight decrease in compensation, and compensation for investment bankers actually increased.
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Real Estate Credit
Not surprisingly, one of the biggest drops in compensation through the financial crisis was for real estate credit workers. The U.S. Bureau of Labor Statistics (BLS) reported an average hourly rate for those involved in real estate credit dropped from $30.53 per hour in early 2007 to $27.00 per hour in May 2010, a drop of nearly 11%.
Earnings for real estate credit firms are tied to the volume and dollar amount of loans they are processing, so this isn't surprising. Since real estate prices have dropped, credit standards have tightened and real estate transactions have declined, the real estate credit industry has been severely hurt by the financial crisis.
The industry has also come under intense scrutiny from legislators, hurting earnings in some parts of the industry. As the New York Times reported in 2009, "It's a bad time to be an honest mortgage broker."
Due to the abuses of the less-than-honest players in real estate credit it seems likely that the industry as a whole will be less lucrative for some years to come. (Doing the work yourself can save money, but it could end up being more costly than a realtor's commission in the long run. Find out more in 5 Reasons Why You Still Need A Real Estate Agent.)
Compensation for portfolio management is often tied partially to the fortunes of their funds, so it is not surprising to find that earnings for portfolio management related jobs has fallen slightly since 2007 as the markets declined. The BLS reported that the average hourly wage has fallen from $50.15 in 2007 to $49.41 in May 2010, a fall of approximately 1%.
It's likely that compensation didn't fall farther because many portfolio managers are not investing in equities. In fact, fixed income funds did relatively well during the financial crisis. Portfolio managers running fixed income funds may still have earned performance incentives.
Aside from the reputation hit that some portfolio managers may have taken from the market crash, compensation levels overall do not appear to have been affected. We can probably expect that compensation for portfolio managers will begin to rise again as the economy improves. (We look at managers that could be poised to deliver market-beating returns in 2010, and how we can participate. Don't miss 5 Money Managers to Watch in 2010.)
Contrary to what you might expect given all the troubles in the banking industry, salaries in what the BLS calls the Securities, Commodity Contracts and Investments industry, which includes investment bankers, actually increased significantly from 2007 to the present. In 2007, the average hourly compensation was $39.39, and in May 2010 it was $42.61, an increase of over 8%.
Compensation stagnated through most of 2008 and early 2009, but rapidly rebounded as banking profits soared post-bailout. While compensation for top banking executives was constrained for banks that accepted bailout dollars, most banks quickly paid back the loans to avoid the restrictions. Most notably, one day after repaying TARP funds, Wells Fargo awarded its CEO, John Stumpf, $10 million in stock, netting him $21.3 million in total compensation for 2009. (In 2009, the list of struggling banks grew by leaps and bounds. Find out which banks are faring the worst in 2010 in Is Your Bank Going Broke?)
By January 2010, the New York Times was reporting that the primary concern regarding compensation for investment bankers was not for pay cuts or layoffs, but rather how big the annual bonuses would be. Recently, several top banking executives such as Goldman's Lloyd Blankfein, and Citigroup's Vikram Pandit have taken voluntary pay cuts in an attempt to quell public outrage. For the rank and file, however, compensation in investment banking remains as generous as ever.
The Bottom Line
Aside the expected decline in compensation for real estate credit workers, wages in the other areas of the financial industry have held up well through the financial crisis. Although there has been some reshuffling within industries, there are still many opportunities to obtain strong compensation as a financial professional.
Catch up on your financial news; read Water Cooler Finance: Google Gains, Taxpayers Pay.