The financial services industry is bracing for lower incentive compensation across most sectors in 2025, according to the latest projections from Johnson Associates’ May 8, 2025 report. After a strong performance in 2024, the industry now faces significant headwinds from market declines, growing geopolitical tensions, and looming trade wars. The overall projections show year-end incentives trending lower across almost all sectors, with the stark exception of trading desks, which are benefiting from increased market volatility.
This comprehensive analysis breaks down the current compensation trends, explores the factors driving these changes, and examines the implications for professionals across various financial sectors. The report highlights that tariffs and geopolitical concerns remain the biggest wildcard for compensation outcomes, with firm impacts varying widely even within the same sector.
Broad Compensation Trends
Johnson Associates projects year-end incentives to decline across almost all financial services sectors, with trading desks being the notable exception. The industry faces a confluence of challenges that are reshaping the compensation landscape:
- Market declines affecting asset-based revenues across the board
- Active equity outflows as investors seek safer havens and derisk portfolios
- Fixed income inflows as investors exit riskier equities
- Fundraising difficulties across illiquid alternatives with greater impact on smaller/mid-sized funds
- Tariffs and geopolitical concerns creating significant uncertainty and market volatility
- Fee compression intensifying particularly in asset management, with margins continuing to fall
- Delayed exits and muted realizations in private markets
- Targeted layoffs driven by technology efficiencies and margin pressures
The impact varies widely by firm and sector, creating a complex compensation landscape that reflects both market realities and strategic positioning. The firm-by-firm data shows substantial variation, with some traditional asset managers projecting declines as steep as -10%, while a few outliers project flat performance, demonstrating the importance of business model resilience.
Sector-by-Sector Analysis
Winners: Trading Desks Surge Amid Volatility
The clear bright spots in this otherwise challenging compensation environment are the trading desks, which stand in stark contrast to most other financial sectors:
- Equity Sales & Trading: Projected increases of +15% to +25%, with trading volume spikes directly tied to market volatility
- Fixed Income Sales & Trading: Expected gains of +10% to +20%, driven by increased client activity and volatility
- Debt Underwriting: Modest growth of +5% to +15%, as debt issuance trends higher while equity markets remain challenged
These areas are benefiting directly from the market uncertainty that’s hurting other sectors. According to Johnson Associates, “Equities and fixed income trading surge on market volatility and client activity,” creating a counter-cyclical boost for professionals in these areas. This divergence highlights how volatility can be beneficial for certain business models while detrimental to others within the same industry.
Traditional Asset Management Takes the Hardest Hit
Traditional asset managers are projected to see some of the steepest compensation declines, continuing a long-term negative trend:
- Traditional Asset Management: -5% to -10% projected for 2025
- Cumulative trend since 2021: -33% (the worst performance of any financial sector)
The Johnson data shows this sector has experienced the most severe and persistent compensation pressure over the past five years. From 2021 to 2023, asset management incentives dropped to -32% below the 2021 baseline, before recovering somewhat in 2024, only to decline again in 2025.
The sector continues to face significant structural challenges:
- Market decline and systemic shift to lower fee products as investors derisk
- Fee compression intensifying with margins continuing to fall
- Product innovation ramping up as firms seek new growth levers (particularly active ETFs)
- Conservative asset allocation mix as tariffs inject uncertainty
- Fixed income inflows as investors exit riskier equities
- Targeted layoffs driven by technology efficiencies and margin pressures
- Convergence of public and private markets as alternative buildouts and partnerships continue
The firm-by-firm breakdown in the Johnson data reveals that 7 out of 17 traditional asset management firms are projecting a full -10% decline in their incentive pools, with another 3 firms at -7.5%, demonstrating widespread pressure across the sector.
Wealth Management: Better Positioned but Still Impacted
Wealth management professionals face moderate declines, faring somewhat better than their traditional asset management counterparts:
- Projected 2025 change: -2.5% to -7.5%
- Cumulative trend since 2021: -10%
Johnson Associates notes that “demand remains strong but offset by market declines.” The wealth management sector’s relative resilience comes from its relationship-driven business model, which provides some insulation against market fluctuations. However, the data shows that in a downside economic scenario, wealth management could see incentives fall by as much as -12.5%, while in the upside scenario, they might gain +5%.
The sector faces similar headwinds to traditional asset management but with less severity:
- Market declines affecting asset-based fee revenues
- Conservative client allocation mix as tariffs inject uncertainty
- Continued fee pressure, though less acute than in institutional markets
The long-term trend line shows wealth management has maintained a relatively stable position since 2021, avoiding the severe drops seen in traditional asset management while experiencing less volatility than investment banking.
Alternative Investments: A Mixed Picture with Scale Advantage
The alternatives space shows significant variation, with size and strategy diversification emerging as crucial differentiators:
- Hedge Funds: Flat to -10% overall, with cumulative trend since 2021 at -6%
- Select macro funds thriving amidst geopolitical turmoil
- Quant funds stabilizing after previous challenges
- Most strategies down after strong 2024 performance
- Illiquid Alternatives:
- Private Credit: Flat (the strongest performer in alternatives)
- Private Equity (Large): -5% to Flat
- Private Equity (Mid/Small): -5% to -10%
- Real Estate: -2.5% to -7.5%
Johnson data reveals a stark divergence between large and small alternative managers. Key trends shaping the sector include:
- Scale advantage emerges: “Mega funds and multi-strategy firms benefit from product diversification” while “small/mid-sized firms with single strategy challenged (exits, fundraising, staffing levels)”
- Fundraising hurdles growing: Particularly impacting smaller and mid-sized funds, described as “realities of poor fundraising environment”
- Exit challenges persist: “Exits have plummeted” with “delayed/muted exits” and “continuation funds rising in prevalence”
- Strategic growth initiatives: “Secondaries, retail funds, and evergreen funds” identified as key growth initiatives
- Regional shifts: “Active hiring in Asia and the UAE” while other regions face headwinds
- Private credit resilience: “Strong demand for talent; strategic partnerships gain momentum”
The Johnson report shows private equity is the only sector maintaining positive cumulative performance since 2021 (+2%), though this represents a significant drop from its +7% position in 2024.
Investment Banking Functional Breakdown and Compensation Implications
A closer examination of specific investment banking functions provides important insights for professionals in various roles:
1. Sales & Trading (Fixed Income, Currencies and Commodities / Equities)
The Johnson data shows FICC and equities trading as the clear winners in the current environment:
- Compensation Trajectory: Strong positive (+10% to +25%)
- Key Performance Drivers: “Trading volume spikes with volatility” and “increased client activity and volatility boosts results”
- Talent Market: Likely competitive, potentially creating opportunities for strategic moves
- Risk Factors: Heavy reliance on continued market volatility, which could subside if geopolitical tensions ease
Trading professionals are experiencing a golden period amidst the uncertainty affecting other segments. Equities trading (+15% to +25%) is outperforming fixed income (+10% to +20%), possibly reflecting the higher volatility in equity markets compared to fixed income.
2. Investment Banking Advisory
M&A and strategic advisory services face significant challenges:
- Compensation Trajectory: Moderate decline (-5% to -10%)
- Key Performance Drivers: “Expected M&A ‘mania’ disappoints with economic uncertainty”
- Deal Pipeline: Likely weak, with corporate clients hesitant to pursue transformative transactions
- Regional Variations: Potentially stronger activity in Asia and Middle East, based on broader trends
The -5% to -10% projection represents a significant disappointment given earlier expectations of strong M&A activity. Johnson’s phrase “M&A ‘on hold'” suggests a temporary delay rather than structural decline, potentially creating pent-up demand if economic certainty improves.
3. Equity Capital Markets
ECM faces the steepest challenges within investment banking:
- Compensation Trajectory: Significant decline (-10% to -20%)
- Key Performance Drivers: “IPO market stalls as firms take ‘wait and see’ approach”
- Market Dynamics: Companies reluctant to go public in uncertain market conditions
- Strategic Implications: Potential for significant talent redeployment or reductions
The severity of the ECM decline suggests this function may see more significant staffing adjustments. However, the “wait and see” characterization also implies potential for rapid recovery if market conditions improve.
4. Debt Capital Markets
DCM shows surprising resilience compared to other investment banking functions:
- Compensation Trajectory: Positive growth (+5% to +15%)
- Key Performance Drivers: “Debt issuance trends higher”
- Client Strategy: Companies favoring debt financing over equity in uncertain markets
- Credit Market Insights: Interest rates and credit spreads likely creating financing opportunities despite broader market volatility
The continued debt issuance reflects corporate needs for capital even amid uncertainty, with debt markets providing a more accessible avenue than equity markets in the current environment.
5. Banking Management and Corporate Functions
Leadership and support functions face alignment with broader institutional performance:
- Firm Management: -5% to -10%, “in line with broader pools after outsized 2024 increases”
- Corporate Staff: -5% to -10%, “trending downward with corporate results”
- Context: These declines follow significant 2024 increases, suggesting recalibration rather than severe correction
The consistent -5% to -10% projection across these functions suggests institutions are maintaining relatively balanced approaches to leadership and support function compensation despite the highly varied performance across business units.
Investment Banking: A Deeper Dive into 2025 Compensation Trends
The investment banking landscape in 2025 presents a complex and bifurcated picture, with significant variations across business lines. Johnson Associates’ data reveals several critical trends impacting compensation in this sector:
Trading vs. Advisory: A Tale of Two Business Models
The most dramatic story in investment banking is the stark divergence between trading and advisory functions:
- Equity Sales & Trading: +15% to +25% (highest growth of any financial services function)
- Fixed Income Sales & Trading: +10% to +20% (second highest growth)
- Debt Underwriting: +5% to +15% (one of only three segments showing positive projections)
- Advisory: -5% to -10% (expected M&A “mania” disappoints)
- Equity Underwriting: -10% to -20% (worst performing investment banking function)
This divergence reflects fundamentally different responses to the current market environment. As Johnson notes, “equities and fixed income trading surge on market volatility and client activity,” while simultaneously “advisory rebounds modestly but outlook dims as M&A ‘on hold'” and “equity underwriting down as IPOs delayed.”
Investment Banking Compensation in Historical Context
The Johnson data shows investment banking (major banks category) experiencing cumulative incentive changes of -13% since 2021, placing it in the middle of the financial services pack. This represents a significant recovery from the -18% trough in 2022-2023, followed by substantial improvement in 2024, before the projected 2025 decline.
This pattern creates a challenging narrative for investment banking professionals, as the sector appeared to be on a strong recovery trajectory before the current headwinds emerged. The 2025 projections represent a reversal of momentum rather than a continuation of a negative trend.
Firm-by-Firm Variation in Investment Banking
The Johnson data reveals meaningful variation across investment banking firms, though with less extreme dispersion than in asset management:
- 2 firms projecting -10% incentive pool declines
- 2 firms projecting -7.5% declines
- 6 firms projecting -5% declines
- 3 firms projecting -2.5% declines
This distribution suggests that while most banks face similar industry headwinds, some institutions have positioned themselves more advantageously. The data does not identify specific firms, but the pattern suggests that banks with stronger trading operations and less reliance on equity underwriting may be outperforming peers.
Key Drivers of Current Investment Banking Trends
The Johnson report identifies several specific factors shaping the investment banking environment:
- IPO Market Stagnation: “IPO market stalls as firms take ‘wait and see’ approach”
- M&A Activity Disappointment: “Expected M&A ‘mania’ disappoints with economic uncertainty”
- Corporate Caution: “Corporate clients turn cautious amid economic uncertainty”
- Trading Volatility Boost: “Trading volume spikes with volatility” and “increased client activity”
- Debt Market Resilience: “Debt issuance trends higher” despite equity market challenges
- Institutional Leadership Moderation: “Firm Management: -5% to -10%, in line with broader pools after outsized 2024 increases”
Regional and Market Variations
Johnson’s commentary suggests important regional and market segment variations:
- Asia and Middle East Outperformance: While not specific to investment banking, the report notes “active hiring in Asia and the UAE” within the alternatives section, suggesting stronger regional performance that may extend to investment banking operations in these regions.
- Credit Market Resilience: The stronger performance of debt underwriting (+5% to +15%) compared to equity underwriting (-10% to -20%) indicates that credit markets remain more active than equity markets, with “debt issuance trends higher” despite broader uncertainties.
Economic Scenario Implications for Investment Banking
The three economic scenarios outlined by Johnson have particularly significant implications for investment banking:
Upside Scenario (20% probability):
- Trading desks likely maintain strong performance
- Potential rapid recovery in equity underwriting as IPO pipeline unfreezes
- M&A advisory could see immediate positive impact from reduced uncertainty
- Bank management compensation could increase by +5% (vs. -7.5% in base case)
Base Scenario (50% probability):
- Continued strong trading desk performance
- Prolonged weakness in equity underwriting and advisory
- Debt markets remain relatively resilient
- Overall compensation trends lower for firm management, corporate staff, and advisory functions
Downside Scenario (30% probability):
- Potential for extreme trading volatility that could become challenging even for trading desks
- Near-complete shutdown of equity underwriting
- Significant bank management compensation decline of -15% (vs. -7.5% in base case)
- Likely significant layoffs across investment banking functions
- Substantial restructuring and strategic shifts at major institutions
Retail and Commercial Banking Trends
While investment banking and trading capture much of the attention, the Johnson data also provides insights into retail and commercial banking performance:
- Compensation Trajectory: Moderate decline (-5% to -10%)
- Key Performance Drivers: “Lower lending volumes and higher credit provisions”
- Consumer Impact: Potentially reflects weakening consumer financial health
- Credit Quality Concerns: The mention of “higher credit provisions” suggests deteriorating loan performance expectations
This segment faces a double challenge of declining business volumes and increasing risk costs. The -5% to -10% compensation projection aligns with most other banking functions outside of trading, suggesting broad-based pressure across traditional banking activities.
Investment Banking Compensation Strategy and Talent Management
The dramatic variations across investment banking functions create significant compensation management challenges for institutions:
Resource Allocation Dilemmas
Banks face difficult decisions allocating their compensation pools:
- Trading vs. Banking Tension: How to balance rewards between highly profitable trading desks (+15% to +25%) and struggling banking functions (-5% to -20%)
- Retention Priorities: Identifying and protecting key talent in underperforming areas while remaining competitive in high-performing areas
- Regional Allocation: Potentially directing more resources to stronger performing regions (Asia/UAE mentioned in the report)
Talent Flight Risk Assessment
The Johnson data suggests varying talent flight risks across functions:
- High Flight Risk: Top traders at less competitive institutions may be targeted by firms seeking to strengthen trading capabilities
- Moderate Flight Risk: Advisory professionals whose 2024 compensation expectations are not met due to market conditions
- Limited Flight Risk: ECM professionals facing industry-wide challenges with few better alternatives
Strategic Talent Investments
Despite broad compensation pressure, banks may still make strategic investments:
- Counter-Cyclical Hiring: Opportunity to acquire talent from struggling competitors, particularly in advisory and ECM where recovery potential exists
- Product Diversification: Expanding capabilities in resilient areas like debt capital markets
- Geographic Expansion: Strengthening presence in Asian and Middle Eastern markets showing more activity
Market Share Battle Implications
The Johnson firm-by-firm data showing compensation variations from -10% to -2.5% across investment banks suggests an ongoing market share battle:
- The 3 banks projecting only -2.5% declines likely hold stronger market positions and/or better business mix
- The 2 banks projecting -10% declines may be losing market share or have less favorable business mix
- Most banks clustering at -5% suggests industry-wide challenges regardless of competitive position
Longer-Term Investment Banking Outlook
Looking beyond 2025, several factors will shape investment banking compensation:
- Pent-Up Deal Demand: The current “wait and see” approach in M&A and equity underwriting could create significant pent-up demand when conditions stabilize
- Trading Normalization Risk: Current elevated trading performance may not be sustainable when volatility subsides
- Technology Impact Acceleration: Johnson’s mention of “targeted layoffs driven by technology efficiencies” suggests continuing technology-driven headcount pressure
- Regulatory Environment Shifts: Changes in regulatory approaches following recent political transitions may impact business models and risk appetites
- Structural vs. Cyclical Assessment: Banks must determine which current trends represent temporary market conditions versus long-term structural shifts
The Macro Picture: Three Economic Scenarios
Johnson Associates outlines three potential scenarios for 2025, with trade tensions and geopolitical concerns serving as the primary variables:
- Upside Case (20% probability):
- Wider trade war averted with relatively flat markets
- Full clarity around reduced tariff plans
- Compensation impact: Flattish (-2.5% to +2.5%)
- Sector impacts:
- Asset Management: +2.5% (vs -7.5% base case)
- Bank Management: +5% (vs -7.5% base case)
- Private Equity: +2.5% (vs -5% base case)
- Hedge Funds: +5% (vs -5% base case)
- Insurance: +2.5% (vs -5% base case)
- Wealth Management: +5% (vs -5% base case)
- Base Case (50% probability):
- Selective tariffs with continued trade war uncertainty
- Muted economic growth with declining markets
- Compensation impact: Moderate decline (-5% to -10%)
- This scenario forms the basis for most of the sector-specific projections outlined above
- Downside Case (30% probability):
- Broad trade war results in recession
- Significant market decline and layoffs
- Compensation impact: Sharp decline (-15% to -20%)
- Sector impacts:
- Asset Management: -17.5% (vs -7.5% base case)
- Bank Management: -15% (vs -7.5% base case)
- Private Equity: -10% (vs -5% base case)
- Hedge Funds: -15% (vs -5% base case)
- Insurance: -10% (vs -5% base case)
- Wealth Management: -12.5% (vs -5% base case)
The Johnson data emphasizes that “final 2025 year-end incentives [are] heavily impacted by outcome of trade war and geopolitical uncertainties.” The 30% probability assigned to the downside scenario indicates significant concern about potential economic deterioration if trade tensions escalate further.
Historical Context and Long-Term Trends
The Johnson Associates data provides valuable historical context through its cumulative incentive trends since 2021. These trends reveal distinct patterns across sectors:
- Asset Management: The most dramatic decline (-33%), with a severe drop between 2021-2023, partial recovery in 2024, and renewed decline in 2025
- Major Banks: Significant volatility (-13% overall), with steep decline in 2022, partial recovery through 2024, and renewed decline in 2025
- Private Equity: The only sector maintaining positive performance since 2021 (+2%), though down from 2024 peak
- Insurance: Relatively steady decline (-9%) with less volatility than other sectors
- Wealth Management: Moderate decline (-10%) with pattern similar to insurance
- Hedge Funds: Mixed performance (-6%) with recovery in 2024 followed by 2025 decline
These long-term trends highlight that while 2025 represents a compensation decline for most sectors, it continues broader structural patterns rather than representing a sudden shift.
Conclusion
The 2025 compensation outlook reflects an industry navigating significant uncertainty after the stronger performance seen in 2024. The projected declines across most sectors highlight both cyclical pressures from market conditions and ongoing structural changes, particularly in traditional asset management.
Trading professionals stand as the clear exception, benefiting from the same volatility that challenges their colleagues in other sectors. The +15% to +25% projected increases for equity trading desks create a stark contrast with the -10% to -20% declines projected for equity underwriting.
For financial services professionals, the divergent performance across sectors and firms underscores the importance of strategic positioning. Scale advantages are becoming more pronounced, with the gap between large, diversified platforms and smaller, specialized firms widening in almost every sector.
As the industry adapts to this changing landscape, compensation structures will continue evolving to reward performance while managing costs in an increasingly competitive environment. The significant variance between the upside, base, and downside scenarios (+5% to -17.5% for some sectors) highlights the unusually high uncertainty in this year’s projections.
Understanding these trends provides crucial context for professionals preparing for year-end conversations and considering longer-term career decisions in financial services.
This analysis is based on Johnson Associates Financial Services Compensation First Quarter Trends and Year-End Projections as of May 8, 2025. Actual results may vary based on market developments, particularly around the trade and geopolitical factors identified as key variables. The projections incorporate three months of actual data with forecasts for the remainder of the year.
