- With so much Wall Street pay linked to bonuses, the law has less bite for financial-services firms.
- Banks and asset managers are worried about a potential rise in litigation, however.
- New pay laws are gaining momentum around the country and could shake up the status quo in finance.
A new salary-transparency law is about to take effect in New York City, the nation’s financial capital. While the new law will leave a lot of money behind the curtain on Wall Street — where top professionals’ compensation consists largely of annual bonuses — it will create some complications for the finance industry.
Effective November 1, employers with four or more employees must disclose a “good-faith” compensation range in any advertisement for a job, promotion, or transfer opportunity. What that means under the new law is that employers must share the minimum and maximum annual-base salary for the role, or the hourly wage — and not including those details would be considered an “unlawful discriminatory practice.”
At banks and money managers, however, much of the compensation for senior executives, portfolio managers, and top sales professionals — if not the majority of it — is determined by discretionary bonuses or other types of variable pay. Suffice it to say, Wall Street’s rainmakers, who have at their highs raked in nine-figure bonuses, will be sitting this big reveal out.
“For more senior positions, I think it will have less impact because salary is a smaller part of pay,” Alan Johnson, the managing director of the compensation consultancy Johnson Associates, told Insider in an interview.
Still, firms are worried about the legal impact of the rules.
“Maybe the biggest thing is, people are worried about litigation,” Johnson said. They’re wondering, “are we going to get sued over this? Will law firms take advantage of the ambiguities of the law?”
He also said he does expect the new law to have a bigger impact on the workforce at banks as opposed to asset managers.
“I think banks have unique problems because they have so many administrative employees. Many money managers don’t have that many administrative jobs compared to banks,” Johnson said, noting that banks may have tens of thousands of staff in administrative roles whose pay is mostly salary.
Jim Cooper, the managing partner at Concentriq, a Boston-based executive-search firm specializing in asset management, said that some money managers have concerns that the new disclosures will result in pay compression, leading to longer-tenured employees being paid less than newer hires.
“What pay compression is going to do is increase the minimum stated salary range for the role,” Cooper said, noting as an example that a role with a typical base salary of around $85,000 may now be advertised at anywhere from $105,000 to $125,000, so as not to potentially turn off candidates and remain in the competitive race for talent.
Overall, Cooper said he does think the new law “will help level the playing field,” including in finance.
“Asset managers, for the most part, have not historically put out base-salary ranges. So now they are being asked to do that,” he said.
The pay transparency law passed on January 15 and was initially set to take effect in New York City in May, but that date was pushed back to November 1. The law has also been amended to clarify its coverage for employees who are paid hourly, and to note that the law “would not allow a person to sue their employer unless such person is a current employee who is suing the employer for advertising a job, promotion, or transfer without posting a minimum and maximum hourly wage or annual salary,” an announcement from New York City Mayor Eric Adams’ office said.
Employers can also avoid a monetary penalty for the first violation of the law, and have 30 days to correct the violation under another amendment.
A domino effect
An executive at Willis Towers Watson sees the new law — and laws like it taking effect around the country, including in California, another financial hub — as fueling creeping changes to the status quo in finance.
Financial-services firms may not be forced to provide info about bonuses in job postings, but that doesn’t mean they won’t face tough questions from job candidates. In fact, they already are, according to Mariann Madden, the North America Fair Pay co-lead at Willis Towers Watson.
“Some banks that I talked to back in the summer — before they were necessarily very concerned about the New York City regulation, or had been thinking about the California regulation — their problem was that they were actually losing candidates because of their lack of transparency,” surrounding discretionary pay, Madden said.
“The candidates couldn’t wrap their arms around, what exactly am I going to get paid,” Madden said.
Candidates expected there would be discretionary elements to their pay, but firms saw pushback if they couldn’t share details about how bonuses are calculated, or how they might be weighted to firmwide, division-level, or individual performance, she explained.
“When it’s a big black box, it makes it much more difficult to feel like, I’m going to trust you because I think this a great opportunity,” Madden said.
A recent Willis Towers Watson survey of North American companies found that 17% of organizations disclosed pay range information in US locations that don’t already require it under state or local law. And 62% of companies were planning or considering disclosing such information in the future in locations where they aren’t mandated to do so — a testament to the changing tide, or at least corporate anxieties, around pay transparency.
The Partnership for New York City — a business group with member firms that include banking and asset-management giants like BlackRock, Bank of America, Goldman Sachs, and JPMorgan Chase — was in favor of pushing the salary-transparency law back from its initial May effective date so that amendments could be made before its rollout.
‘No way to post bonuses up front’
In April, the group and chambers of commerce for the city’s five boroughs sent a joint letter to the New York City Council. The letter pointed out that, in financial services, “the potential for performance bonuses at the end of the year is a greater consideration than salary, but cannot be calculated until business earnings are realized at the end of the year.”
Kathryn Wylde, the president and CEO of the Partnership for New York City, told Insider in an interview that member firms generally feel that the pushback of the law’s effective date gave them the needed time to make changes within their organizations.
“I know that some have already implemented the law, seemingly without major difficulty,” Wylde said.
As for job-posting disclosures that might shed more light on total compensation on Wall Street, she said she doesn’t see how that could work, taking bonuses into the equation.
“Really there’s no way to post bonuses up front,” Wylde said. “That is determined later in the year,” she continued, adding: “I think what the council was looking for here was sufficient transparency, so that there was gender and racial equity in the salary structure and I think the law accomplishes that.”
“Obviously, bonuses depend on a combination of individual performance, markets, and profits. You can disclose the structure and the terms, but it’s unpredictable when somebody is being recruited as to their numbers,” Wylde said.