If you work in banking, you will earn a lot of money. For all the talk of ‘rebasing banking pay’ by hiring juniors with no recollection of the good old paydays, banking is still abnormally remunerative. University students who go to work for Goldman Sachs can expect to earn £46k ($71k) in year one - and that’s just in salary. Ten years later and mid-six figure compensation is still the norm if you’re in a ‘front office’ job in sales and trading.
Why though, are bankers still such high earners? We spoke to three banking analysts about industry remuneration and the stickiness of compensation. This was their justification for the ongoing banking bounty.
“Rome does not change in a day,” says Brad Hintz, veteran Wall Street banking analyst and adjunct professor of finance at NYU Stern. Bankers who used to make $5m before the financial crisis are now earning $2m, says Hintz. Whilst this is a “career tragedy” for those concerned, it’s still an extreme amount of money for anyone in the “real world”.
Hintz says banking pay is high because banking jobs don’t last long: “The average lifespan of a managing director is five years.”
Given a short career lifespan the business has evolved to provide high compensation, adds Hintz: “If you want security get a job at the post office.”
In a capitalist system, bankers are at the heart of the machine. “In history, anyone who has controlled capital has taken a huge pot of rent,” says Chirantan Barua, senior banking analyst at Bernstein Research in London.
This isn’t just about bankers creaming money off the system. The role is tough and compensation reflects this. “Capital allocation is difficult,” says Barua. “And even more so if it is done internationally.”
The capital allocation argument applies equally to IBD jobs as to trading roles, says Barua. “When company A buys company B in M&A, it’s capital deployment,” he says. “The same applies when you’re trading securities, or investing a private equity fund.”
If finance professionals are paid more than anyone else, this is at least partly because they work harder than anyone else. When working hours are factored in, junior bankers’ pay suddenly looks a lot less appealing. 70-80 hour weeks are the norm, and some bankers work longer still.
“Associates and vice presidents work 100-hour weeks for years on end to reach the managing director level,” says Hintz.
“Junior bankers who work 12 or 13 hours a day expect their pay to reflect that,” says Christopher Wheeler, US banking analyst at Atlantic Equities. “I’ve had people say to me that if they’re going to earn less than $100k they might as well be working an eight-hour day at a Big Four accountant.”
Finally, Wheeler says the lucrativeness of banking jobs has something to do with some banks’ historical partnership status.
“When banks were partnerships all the profits were redistributed,” says Wheeler. “Everything was paid out to the employees. When banks went public, they had to work out how to divide up the profits with shareholders. Pay is still being re-balanced towards shareholders, but you still have that legacy of sharing as much as possible among the staff.”
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