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As Occupy Wall Street protesters advance plans to survive a New York winter in Zuccotti Park, a new report revealed that the upcoming bonus season will be a little less warm for Wall Street traders and senior management (not including proxy executives). According to a survey released Tuesday by Johnson Associates Inc., these financial-sector workers can expect to see a 20 to 30 percent drop in bonus compensation this year. This highly anticipated set of projections heralds the first drop in bonus compensation since the 2008 financial crisis, following big bounce-backs in 2009 and 2010. The drop reflects poorer performance in the banking industry, and the bonus cuts are expected to hit the investment banking, equities, and fixed-income sectors the hardest, while those who work in the asset management and high net-worth fields might not see any impact. The combination of a stalled economy in the U.S. and ongoing debt crisis in Europe added up to the bleaker forecast, said Johnson Associates managing director Alan Johnson in an interview with CorpCounsel.com. “Everybody thought 2011 would be better,” said Johnson, who bases the survey on data from the firm’s clients, conversations with people in the industry, and public securities filings. “It’s just that the business wasn’t there.” The good news, said Johnson, is that where 2011 has shaped up to be a “disappointing” year, it’s not the “catastrophic” year that was 2008. Financial firms are “much sounder institutions” than they were before, he said. Still, the extended effects from the housing market implosion that sent the country into a financial tailspin are continuing to be felt, he said, adding that “we’re probably two to five years from being out of this.” The frustration of citizens with the ongoing fiscal fallout is symbolized in the Occupy Wall Street movement, according to Johnson. “It’s a canary in the mine,” he said. And he sees the sentiments fueling the protests as a “big deal,” because they impact politicians, who impact regulators, who impact the media. With respect to the specific findings, Johnson said he believes the projected bonus cuts represent frugal decision making at firms, not a direct response to the OWS movement. Nevertheless, public opinion can and does impact how companies make compensation decisions, says Alexandra Niessen, an assistant professor of business at Germany’s University of Mannheim. Together with Camelia Kuhnen, a professor at Northwestern University’s Kellogg School of Management, Niessen co-authored the forthcoming study “Public Opinion and Executive Compensation,” set to be published in Management Science next year. First and foremost, when profits are dropping, “bonuses have to be adjusted downwards,” Niessen said. But, “firms do react to public outrage,” she said. “We find evidence that this is the case.” Earlier in the decade, public outrage was tied to stock options, and the fact that accounting standards did not require companies to expense options as a cost—an issue that regulators addressed by revising the standards for expensing those options. More recently, she said, compensation has been the hot-button issue. “This is what the public really cares about right now,” she said. See also: “Plenty of Good News in the Latest Report on In-House Compensation,” CorpCounsel, November 2011.

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