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EDITOR’S TAKE: Beware the juniors prepared to work for zip

Earlier this year, we ran a survey on our Student Centre asking what students would be willing to compromise on to get a first banking job. 460 people responded; 33% of them said they’d be willing to work for nothing.

Given first year analysts (at top firms) were earning six figures not too long ago, that’s a big step down. It’s also an interesting indication of where pay for mid-ranking and junior bankers is heading.

Investment banking careers have always had a whiff of Ponzi about them. MBAs and graduates squeeze in at the bottom, work relentlessly, and hopefully emerge midway up the pyramid to retire early without joining the civil service. For the past few years, the pong of Ponzi has obscured by the immediacy of big rewards. It’s likely to be less nuanced in future.

All the indications are that low level banking pay is set to plummet. Associates and analyst hired over the past two to three years are now out of the market and desperate to get back in, whatever the price. A senior recruiter at one bank says he now has an “inbox full of people willing to work for free.”

At the same time, the supply of entry level bankers is building up behind a wall of MSc in finance courses which will begin crumbling at the end of this year. Having spent 20k+ to study these courses, who’s to say graduates won’t even be willing to pay banks for the privilege of getting some valuable experience. A whole new business model could be born.

Meanwhile, the top of the market looks relatively robust. Rainmakers bring revenue streams. Deutsche has poached a large proportion of Merrill’s US FIG team and boutiques like Moelis, Quattro and Evercore are picking up senior staff with the right high level connections.

The outcome looks will be an industry in which senior staff collect big payouts and junior and mid-ranking staff work unfeasibly hard for peanuts in the hope of becoming senior too. It may whiff of a Ponzi scheme, but in reality it’s more like a partnership structure. Investment banking is going back to its roots.

Comments (14)

  1. this is actually dangerous. no pay is a good way to gain some banking experience but the underlying culture of treating juniors as the lowest of the low will continue and seniors can still pocket huge payouts while others will be slaving for them, not havign a life, not sleeping. most importantly, juniors who don’t get paid can get fired easily, not really get any well-rounded experience and have to explain why he/she is in the market looking for a job again. best suggestion would be to offer to work for free in the first 2-3 months but sign a contract where you’d get a salary at market rate after that

  2. I understand actuaries and lawyers get paid very little prior to qualification (at least 3y for actuaries and 2y for lawyers). Maybe if investment banking moves to a regulated industry, it could follow this example. After all, there is a lot to be said about the value of experience. The number of mistakes I have seem juniors make is incredible. (Of course, higher ups make horrible mistakes too but maybe we should get rid of them instead.) But I think zero is a little harsh (much like the situation in investment banking right now).

    Experienced Professional Reply
  3. Why do people still have so many expectations on this industry?

    @eloise: If I can hire a junior without pay, then after 3 months, I will simply hire another one with the same terms, market rate or so will be a mirage.

  4. Have to report that i also have a large tranche of approx 1 yr trained “Mini Bankers” who are looking for work/work experience to get a foot in the door…theu are on the whole a pretty impressive lot from some decent named Institutions…I think that a good deal of their currently working peers should beware..if this starts to become a trend

  5. 1st year Analyst with 6 figures? Which firms were ever dumb enough to do that?!! Sarah may I ask where did you get this info from?

  6. In many industries interns work for nothing, so Sarah has precedent on her side. This is particularly true in media for instance where some firms even charge for the “privilege” of doing menial work.

    Whether it is rational to choose to be a free intern is harder to determine. A lot goes to what sort of work you will doing, and as a newbie, by definition you don’t know enough to make that call.
    Sarah mentions the 20K cost of an MFE/MSc, but add that to your first degree plus living expenses, you can easily be 30-50K in debt. You may simply not have it as an option.

    Also, we are trying to get clarity on the legal position on things like minimum wage.

    Lawyers do get paid in their 2 year training, this varies a lot but in some cases is pretty comfortable, but they don’t always get paid whilst doing the courses that get them training contracts, the better firms do however sponsor a few of the very best students like my wife :) As a headhunter I see far fewer sponsorships of MFE/MSc.

    Rice makes a good point about staff turnover, and that works both ways. Managing people who are actively looking hard for another job is hard work, been there done that.

    Dominic Connor, Headhunter of Old London Town Reply
  7. John – info on six figure first years came from various analyst recruiters in 2007. Wasn’t widespread, but was definitely happening – for the top tier of people at top tier firms.

    Sarah, Editor, eFinancialCareers Reply
  8. “Given first year analysts (at top firms) were earning six figures not too long ago”

    Just one of the many problems that the current crisis has exposed.

    Compared to junior pay levels in other professions (law / medicine / consultancy) the disparity is even more marked

    Discussion about people working for free is equally ludicrous. That proposition is without legal foundation and totally unsustainable.

    The outcome of this is evident. Junior and Mid ranking staff will receive less total compensation as bonus letters will become historical artifacts, consigned to the great commercial waste bin.

    As for the top brass…well….its still capitalism after all

    I do hope that somebody comes back with the “talent arguement” and the need to pay excessively for it. That one really takes me to the circus.

  9. Yep, working for free is ludicrous. If anything they would come in as interns on short term contracts. With no pay, then you have no commitment to the company, and u’d probably jump ship the first opportunity you get. This would also affect morale. Also, can these firms justify retraining new recruits every three months. I think not. Totally unworkable

  10. @John, @Sarah,

    Whatever recruiters say, the truth is that 6-figure salaries were and are not widespread. But they do exist. It is the ‘lottery’ effect. You just have to be at the right place at the right time. When you are a junior fresh out of school who has been lucky to find a seat on a desk that makes tens of millions, if the top traders get paid millions, usually it is considered ‘fair’ to give you at least a six-fugure bonus.
    It is the same thing as being Bill Gates’ cleaner, you are surely not paid 8 an hour!

    I interviewed many juniors in the past making that kind of money to join my team where people with a similar number of years of experience were making a maximum total package of 50k. The reality if that most of them had spent their time formatting spreadsheets and surfing on the web, which is very sad for quants. Smart recruiters know that you can find excellent quants or financial engineers from software firms or small-size banks for a quarter of the price of those coming from desks of big banks.

    It should also be told to all young graduates planning to work in IB that a lot of people do not reach 6-figure packages before 5, 7 or even 10 years.

    ExperiencedQuant Reply
  11. We often saw a 6 figure bases in $, but never in , though if you include 1st year bonus some people did get more than 100K first year out of university, but that was far from common.

    Certainly as EQ says, some quants are little more than Excel jockeys, but I have to say there are very few Excel specialists I regard as competent. EQ is right that the distribution of annual pay is very wide with there being a lot more people on <60K *including* bonus than you might think.

    Dominic Connor, Headhunter of old London Town Reply
  12. Thanks for the information about the salaries – very useful.

  13. First, that 6 figure salary number probably includes bonus – not so unreasonable … I’m from the US and even if you take a 6 figure salary of say $100k and calculate an investment bankers hourly wage you get something around minimum wage

    Let’s try not to confuse M&A bankers with so call capital markets specialist and traders who created and move these derivatives and high-yield instruments … just because they work at an investment bank doesn’t make them investment bankers

  14. This six-figure salary for first year analysts comment is the kind of sensationalist stereotyping that I see far too often on this site. It’s akin to tabloids making sweeping generalisations about bankers getting “million pound bonuses”. ExperiencedQuant makes a valid point in that a lot of people do not reach 6-figure packages for many years. Potential new entrants should set their expectations accordingly.

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