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How low will analyst bonuses go?

We’re fast approaching the time of year when banks’ most junior cohort – analysts – are informed how large or small their bonuses will be. Most will find out in June, although Rothschild’s analysts (and more senior bankers) will be told this week.

It’s still too early to get any firm handle on the numbers, but a big drop seems likely. Based on revenues at the end of April MergersandInquisitions (from whom we shamelessly plagiarized the title of this article) is predicting a fall of 30-50%.

We have spoken to several recruiters and junior bankers who think the reduction is likely to be at the top end of this range. Their rationale for a big fall is as follows –

Corporate finance teams are still over-staffed:

Although FIG and healthcare are busy, other teams aren’t. There may be further redundancies later in the year, so there’s little need to pay moderate performers well (or indeed to pay them anything at all).

Competition for top analysts from private equity funds and hedge funds has abated:

Between 2004 and 2007, analyst pay was driven upwards by hedge funds’ and private equity funds’ appetite for investment banks’ most prized junior employees. Now, many hedge funds are struggling and private equity funds are mostly interested in hiring people with previous private equity experience. “Their emphasis is on individuals with exposure to portfolio management,” says Abid Hussein, head of financial services at EM Group.

There are lots of people out of the market:

With plenty of analysts already let go over the past 12 months, analysts still in work should feel sufficiently shell-shocked to consider their bonus their job.

Associate bonuses were down by an average of 50%:

Cutting analyst bonuses by the same amount will maintain the differential.

However, we also came across bonus bulls who think that the top cohort of analysts will get paid handsomely for the following reason:

Markets are picking up:

What with green shoots, big rights issues and a flurry of deal activity, banks need to ensure that they retain their best performing analysts to cope with the possibility of a heavier workload. Expect the top tier to be paid well as a result.

Equally, some people are forecasting higher salaries for analysts, even if their bonuses fall. Merrill is rumoured to have raised salaries for second and third year associates to 77k, up from 65k and 70k respectively. “Most analysts are expecting a salary increase in line with that,” says one recruiter.

To recap, here’s what we said top ranking City-based corporate finance analysts were paid last year:

First-year analysts: 35k-37k base; 16k-35k bonus (up to 40.5k at Goldman and Morgan Stanley).

Second-year analysts: 45k base; 20k-45k bonus (up to 55k at Goldman and Morgan Stanley).

Third-year analysts: 50k base; 40k-60k bonus (up to 70k at Goldman and Morgan Stanley).

Source: EM Financial Services

Comments (21)

Comments
  1. “First-year analysts: 35k-37k base; 16k-35k bonus (up to 40.5k at Goldman and Morgan Stanley).

    Second-year analysts: 45k base; 20k-45k bonus (up to 55k at Goldman and Morgan Stanley).

    Third-year analysts: 50k base; 40k-60k bonus (up to 70k at Goldman and Morgan Stanley). ”

    IBD losers working 100 hours a week for those paltry sums whilst their FICC counterparts do half the work for, in many cases, more than double that bonus…

  2. No reason to pay analysts this year in this environment. What are their alternatives? Article is spot on. PE now only looking at candidates from other funds and most other banks and HFs not in a need/position to hire. So what if a few analysts leave – even good ones – not exactly like the market is picking up yet. Anyway, those who end up becoming top performers are up to speed before 6 months of hiring – corp fin is not a difficult job – so can always just increase graduate intake when activity starts picking up.

    For bonus levels, look to 2002/03. Top 2nd year bonuses around 30K at GS and MS but with majority of good (but not top) performers paid around 20k.

    Dont see any reason to pay more than that this year.

  3. Henry being a tool as usual..Interesting article..figures sound pretty accurate for a change

  4. These numbers are SHOCKING vs what Sales&Trading counterparts at the same level are getting. Where for 1st year it is broadly on par / accurate but then it completely spirals in S&T – literally 200%+ the above numbers.

  5. Anybody else suspect that Henry is actually an unemployed loser, who still lives at home with his mother?

  6. Henry where do you get your info from?
    From a banks point of view…why pay a bonus this year? Might as well save that money to hire more (senior) people…not like the analysts have anywhere to go! Thier bonus this year is to just have a job!

  7. Sarah, any insight into how promotions from analyst to associate are progressing?

  8. All these people who slag off Henry…

    Imagine if intelligent people behaved in this way too? We’d be living in chaos!

    “Henry being a tool as usual…”

    Well done ‘Analyser” aren’t you the big man? Or the witty man? Or the clever man? Do you think Henry really cares about such silly retorts?! Indeed on the contrary; this is partly the reaction he is seeking. Whilst some of Henry’s claims and figures do seem ‘high end’, and not the norm, they are plausible for top performers. Some people just don’t like leaving money on the table.

    What we need is people who are able enough to engage in a debate about WHY Henry is wrong (i appreciate that evidence is tricky to come by, given the sensitivity of the compensation topic) but still…

    ps re: IBD juniors slaving for fraction of FICC counterparts — couldn’t agree more! An inefficiency that’s perplexed me for some time.

  9. lies all lies. i work at a god forsaken nationalised uk bank (you guess which). i am a first year asset manager. salary 33k, sign on 3k, bonus 9k. i am on the breadline here! somebody help

  10. I am not worried about my pay, being independently wealthy means these trivial issues mean nothing to me…

  11. Henry still lives with his mother. She makes him a packed lunch everyday to take to his data inout job.

  12. what makes a good analyst?

  13. 2nd year analyst bonus (natgas & power desk): 85k
    please stop moaning you bitter banking monkeys…

    commodity trader Reply
     
  14. Interesting.
    The difference between S&T and IBD is huge.
    Of course there is the difference in pay in the short term and in the long term (although the examples of S&T pay mentioned seem to be outliers, whereas the average IBD is on top). On the other hand, there is just the mere difference in the type of work and its impact and prestige. This, for me, is a huge factor to keep in mind. Next to this, the exit opps in IBD (business school, other jobs) are just way better than in S&T. No comparison. The hours in the first years are indeed a big sacrifice in IBD, but long term advantage definitely tilts toward IBD.
    Next to this, potential colleagues are quite different too. Public vs private. Nough said.

  15. Barclays Capital paid 2500 for their 2008 analyst class, everyone, the same. Yes, no zeros missing, two thousand and five hundred.

    barcap analyst Reply
     
  16. @Douche – Sorry for long delay in replying. Didn’t get much on analyst promotions, except for vague rumour that a lot of people in Morgan Stanley’s Paris office had made it through. Have results of assessments been announced yet? Can make further enquiries if so.

    Sarah, Editor, eFinancialCareers Reply
     
  17. Good one jack, then why are you looking on this website???

  18. It is true that you get completely screwed in IBD vs. S&T during analyst and associate years. Assuming you are a top performer in both areas, you will definitely make more money with less effort in S&T over your early years. No discussion. Another ridiculous point is that min time from entry to analyst programme to vp in IBD is 6 years whereas anybody half decent in S&T should be vp within 4 years of joining analyst programme.

    Now, I actually stillk think it may be worth the trade-off because you do learn a lot of useful, transferable skills (yes, there is a lot of monkey work as an analyst as well). The big difference is that the work gets more interesting over time and especially if you at some point go to PE and work on buying and running companies. You also have a lot of exit options: go to corporates as CFOs, heads of strategy, go to HFs, PE etc.

    In contrast a sales job gets more and more dull by the day and does not develop any useful skills apart from the ability to sell. You dont even need to be smart or understand your product as long as you can smooche middle-aged fund managers by taking them drinking and dining. A lot of sales guys I know are so bored and hate…

  19. …their jobs after a few years. Learning nothing. Being bored out of their minds. But they all do appreciate the opportunity to make serious money without the lifestyle sacrifices of IBD. Most of their sacrifice is in mental development and most of them acknowledge that. Fair trade.

    As for transferable skills – to take a relevant example – what else can somebody who has structured CDOs for 8 years do? Flip burgers? Not even sure about that. Slightly better for sales guys even though most dont have any material content skills aside from sales process skills. But the latter is a valuable one. There are always things to sell. Somebody who could sell toxic CDOs to clients who did not understand them can probably also sell tractors, kitchen equipment to restaurants…or houses for that matter…

  20. Ari,

    Fantastic post. Very balanced and accurate.

  21. How do Analyst sales-trading bonuses at tier one banks compare with their Trading counterparts? Vanilla equities product.

    Sales-Trader starting 2009 Reply
     

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