Cash bonuses on Wall Street fell 14 per cent last year, according to an estimate by New York state, reflecting the weak performance of investment banking and the shift towards “deferrals” as a bigger element of pay.

But the fall, from $22.8bn in 2010 to a forecast $19.7bn, is much smaller than the decline in industry earnings and smaller than many bankers experienced – a discrepancy that the state comptroller attributed to the increasingly popular practice of spreading bonus payments over several years.

“Part of what’s happening here is the increase in deferred compensation,” said Thomas DiNapoli, state comptroller. Although cash bonuses were cut sharply this year, he said the impact was mitigated by payments from previous years.

The structural change was applauded by the state, which hopes it will lead to smoother tax revenues.

“The increased use of deferred compensation should create a pipeline of bonuses that will be paid in future years, which will reduce volatility in industry tax payments,” the comptroller’s office said. Tax income for “Wall Street-related activities” accounted for 14 per cent of the state’s tax revenue last year.

Bankers are divided about the wisdom of the move. It has been broadly encouraged by regulators in an effort to change incentives among traders, stopping them reaping upfront profits on transactions that later sour.

Morgan Stanley opted for strict caps on cash bonuses this year, limiting pay-outs to $125,000, while Credit Suisse has moved more of its workforce on to deferred schemes in the past few years.

But others are concerned that the trend increases a bank’s fixed costs, punting costs to the future and leaving less room for manoeuvre in bad years.

Jes Staley, head of investment banking at JPMorgan Chase, this week touted the flexibility of his bank’s pay structure in a presentation to investors: the “ability to manage variable compensation” was a “competitive advantage”. He said JPMorgan had chosen to make pay competitive on a dollar basis rather than matching other banks’ compensation-to-revenue ratios. That would have meant higher bonuses and a return to the “arms race” of a few years ago, he said.

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