Wall Street’s Bosses Reassert Themselves With the Return of Annual Culls

So an informal strategy emerged to shield the rank and file from the CEO’s dictate without antagonizing him, according to people with direct knowledge of the matter, who asked not to be named discussing internal practices.

Anyone who Dimon might possibly walk the halls looking for, such as a managing director, needed to come into the office. They just couldn’t take the risk. Many others, though, were given leeway to keep working from home discreetly. The recruiters were busy enough. (Joe Evangelisti, a spokesman for the bank, says assertions that such a system existed are “false.”)

One year later, as the economy slows and financial markets slump, the mood on Wall Street is quickly changing. The sense that it’s an employee’s job market where the rank and file can set their own terms is fading. Ignoring edicts from the C-suite is now a dangerous game. Few would dare.

At a small but growing number of firms, job cuts are back on the table. This month, in a warning shot heard around the financial world, Goldman Sachs Group Inc. CEO David Solomon, another return-to-office stalwart, resumed the firm’s practice of periodically culling underperformers to make way for new talent—an unsavory ritual that had been put on hold because of the pandemic.

As Goldman goes, so go competitors, and it takes only a few of them to tip the scales back in employers’ favor. Even staff at Wall Street firms that aren’t known to be trimming payrolls won’t be eager to risk their jobs when opportunities elsewhere are drying up.

To be clear, no one is expecting a massive wave of layoffs like what unfolded after 1987 or 2008. It’s likely to be a lot smaller and more subtle than that. And yet, after years of extreme job security and fat bonuses, the shift will feel acute and act as a harbinger of what’s likely to come for white-collar workers across corporate America.

Wall Street executives see the culls as part of the life cycle: Let go of the laggards and enlist fresh talent for an ever-evolving business that requires energy and stamina. Unwillingness to make cuts is seen as poor financial discipline and a sign of profligacy.

“It’s been this really abnormal situation where companies were in hiring mode and never letting anybody go,” says Andy Challenger of Challenger, Gray & Christmas, which advises employers on workplace reductions. “The first eight months of this year was the lowest level of layoffs that we’ve ever tracked.” But it will go up from here, Challenger says.

Indeed, in pockets throughout the banking industry, managers who were racing to fill empty seats a year ago are starting to pare back. Even minnows in the space, for example, Bank of Montreal’s capital-markets division, are cutting jobs to respond to weakening market conditions. And it goes well beyond the rarefied world of investment banking.

Wells Fargo & Co.’s home-lending unit has laid off hundreds of people in the past few months in cities such as Charlotte, Des Moines, Minneapolis, and Portland, Ore., people familiar with its cuts have said. In some cases that’s included entire teams and managers. Even in the banking hinterlands, a credit union in North Liberty, Iowa, recently cut 5% of its workforce as rising interest rates slowed mortgage refinancings.

Driving the shift on Wall Street is a merciless focus on the bottom line, which has managers sweating the inevitable comparisons to 2021, a year of spectacular hauls.

In this year’s first half, revenue from investment banking—the business of stitching together mergers and helping companies raise debt and equity—slumped 43% at the five biggest banks. Through the first nine months, the trend is continuing, with JPMorgan recently warning that its banking revenue this quarter could be half of what it was a year earlier.

Nagging worries about the health of the economy and the Federal Reserve’s raising interest rates ever higher are throttling investor demand for stocks and bonds and discouraging corporate executives from calling up their bankers to map out potential deals.

The threat of job cuts takes center stage, but another concern is creeping up: Yearend bonuses are likely to plunge.

Incentive pay for dealmakers handling debt and equity offerings may tumble more than 45% this year, while advisers on mergers and acquisitions see their bonuses drop 25%, according to a closely watched report released in August by compensation consultant Johnson Associates Inc.

“The banking business has a big component of variable compensation, so therefore you can adjust,” JPMorgan President Daniel Pinto said at a conference in September. “Not just letting people go, you can adjust by reducing comp.”

Last year, when the rewards ballooned, Goldman tried to politely manage expectations. It labeled a portion of pay bumps to its most senior employees as a one-off gift, partly to forewarn them that they shouldn’t set a new baseline for the future.

It’s another reminder of how quickly the tune can change on Wall Street—where denizens preach the virtues of cyclicality. Few industries embrace boom-time excesses so readily, only to quickly shed their ranks and slash pay when the cycle turns. And when you are out of favor, the turn can come rather quickly.

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