NEW YORK (Reuters) -Wall Street bonuses are expected to rise for the second year for traders and investment bankers on surging deal volume and market volatility, according to financial compensation consultancy Johnson Associates.

The bonus pool is expected to be the highest since 2021, when deals and profits surged to a record. Equity sales and trading professionals are expected to get the biggest bonus bumps of 15% to 25%, while investment bankers in M&A advisory and equity underwriting will likely get increases of 10% to 15%. 

"Markets are at record valuations and there is a large pipeline of deals that were paralyzed and now are getting released," said Alan Johnson, managing director of Johnson Associates. 

VOLATILITY BOOSTS TRADING DESKS

Tariffs introduced by U.S. President Donald Trump this year fueled market volatility, buoying trading desks. As the deal environment improved in the second and third quarters, banks ramped up hiring of senior investment bankers. 

Incentives for financial professionals in hedge funds, private credit, insurance, retail and commercial banking are projected to rise by as much as 5% to 10%.

The boom times may fade next year if the economy slows and credit and investment deteriorate, Johnson predicted. 

Financial firms are expected to reduce up to 20% of their workforce over the next five years, largely because of artificial intelligence. The headcount reductions will initially reduce the number of entry-level employees, but eventually affect mid-level operational roles.

"Everyone is now trying to understand how this dynamic will affect financial careers," Johnson said. With a smaller group of junior employees, the pool for promotions will be smaller.

Salary increases are expected to significantly slow this year to an average between 3% and 3.5%, Johnson said. 

"Companies are focused on keeping costs down, have slowed hiring and will start cutting headcount due to AI," posing challenges for employees trying to secure larger pay increases, he said.

EXPECTED CHANGES IN 2025 BONUSES 

Business Area  Percent Change

from 2024 

Equity Sales & Up 15% to 25% 

Trading 

Firm Management Up 10% to 15% 

(Equity

Underwriting) 

Advisory  Up 10% to 15% 

Wealth Up 8% to 10% 

Management 

Asset Up 7% to 12% 

Management 

Fixed Income Up 5% to 15% 

Sales & Trading 

Investment Up 5% to 15% 

Banking (Debt

Underwriting) 

Investment Up 5% to 8% 

Banking 

(Equity

Underwriting) 

Private Credit  Up 5% to 10% 

Corporate Staff  Up 5% to 8% 

Hedge Funds  Up 2.5% to 10% 

Insurance  Up 2.5% to 5% 

Retail & Flat to Up 5% 

Commercial

Banking 

Private Equity  Flat to Up 5% 

Real Estate  Flat