Why it makes sense to junk juniors

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Why would anyone with an inclination for cost cutting dump a lowly analyst? Analyst pay is relatively insignificant, so in times of cost constraint they should be impervious to layoffs.

Sadly, this doesn't appear to be the case. While first-year analysts are usually immune to the chop for political reasons (banks don't want university students to hear that their immediate predecessors have suffered a nasty fate), second and third years are getting canned just like everyone else. Fixed costs associated with each unit of headcount are to blame.

"There's a massive central overhead," says an ex-derivatives trader. "This means that at a junior level banks have an incentive to get rid of people, not because of salary savings, but because of savings in the cost of office space, security, etc."

Andrew Pullman, MD of People Risk Solutions and a former head of capital markets HR at a European bank, says desk space alone can cost around 6k per head; a Reuters terminal can cost around 5k; and HR amounts to another 5k per person.

Once things like compliance, IT and other operational costs are factored in, the head of HR at one US bank in the City puts the total 'seat cost' at anywhere from 50k-75k. Additionally, employers' national insurance contributions and benefits packages swell direct compensation costs by around 25%.

Before bonuses are even thrown into the equation, banks are therefore able to shave as much as 130k from the bottom line every time they get rid of a second-year analyst. Dumping junior bankers suddenly makes a lot of sense after all.

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