BofA's Stock Rewards Reflect Conundrum for Big Financial Firms

Bank of America's (BAC) decision this week to reward almost all its employees with restricted stock reflects a wider conundrum facing U.S. financial firms: Retaining talent while restraining costs amid turbulent financial markets and the uncertain economic outlook.

The company said Wednesday it would give the stock to workers earning up to $500,000 annually, accounting for 96% of its employees. The bank's decision comes just a few weeks after rivals Goldman Sachs (GS) and Morgan Stanley (MS), and BlackRock (BLK), the world's largest asset manager, began laying off between 2% and 7% of their respective workforces.

A Bank of America spokesperson said it's the fifth consecutive year the firm has offered restricted stock on top of regular compensation to the majority of workers. Last year, that amount totaled $1 billion. Each employee will receive between 65 and 600 restricted stock units. The company's stock trades near $35 per share.

The news comes as many Wall Street firms have either stopped hiring or reduced staff after U.S. stock and bond markets plunged last year. Recession concerns have increased amid the Federal Reserve's rate hikes.

Goldman is cutting 3,200 workers, Morgan Stanley will lay off 1,800, and BlackRock will pare about 500. In addition, BNY Mellon plans to cut 3% of its workforce, or about 1,500 employees, this year. Credit Suisse (CS) cut 2,700 workers in the fourth quarter, and Barclays (BCS) and Citigroup (C) also have laid off dozens of banking, advisory, and trading personnel.

Many Wall Street workers who kept their jobs, meanwhile, face up to 30% to 45% cuts in annual bonuses that typically account for a quarter to half of their annual compensation.

Striking a Balance

Fee revenue fell last year across the U.S. investment banking industry along with initial public offerings and merger activity. The nation's largest banks also are bracing for a potential recession by setting aside more money to cover loan losses.

Wall Street firms fit the profile of firms currently most susceptible to layoffs. Aaron Terrazas, chief economist at employment website Glassdoor, said such firms include those most affected by the Fed's rate hikes and the economic outlook.

"The biggest question right now is this reevaluation of risk," Terrazas told The Washington Post earlier this month.

At the same time, Wall Street firms still must compete for workers in a U.S. economy in which average pay is forecast to rise 4.6% in 2023, up from 4.2% last year. At the end of November, workers who had stayed at their jobs made 5.5% more, on average, from a year earlier, up from a 3.7% gain for the same measure taken in January 2022.

Meanwhile, the overall U.S. jobs market remains historically tight, with the latest monthly report from the U.S. Labor Department showing that 10.5 million openings remain unfilled—or 1.7 for every unemployed worker.

Citigroup exemplifies the give-and-take approach Wall Street firms have taken with regard to wage costs. The firm laid off 50 traders late last year, yet reportedly plans to raise base salaries for associates and vice presidents—so-called "junior bankers" in industry parlance—by 10% to 15%.