It is the perennial question. Will banking make you rich? Or will it just make you overworked and sad? If banking will make you rich, is it worth it? And what is the best method of putting yourself in the way of these riches?
The European Banking Authority (EBA) has gone some way to answering to answering the crucial question and the final sub-question in today’s report on remuneration practices and high earners in the European banking industry. If you want to earn a million in banking, the EBA implies that you should do as suggested by the charts below.
1. You must work in the City of London
There are five times more people earning €1m+ in London than in Frankfurt. There are 13 times more than in Paris.
2. You might want to be an identified risk taker or member of senior management
An increasing proportion (59% at the last count in 2013) of the people earning €1m in European finance are ‘identified staff’ who are known risk takers or senior managers. Unfortunately, this means that they are also impacted by the EU’s bonus cap.
3. You should work within an investment bank
This won’t come as a great surprise to anyone, but… if you want to earn €1m in finance you’re better off working in an investment bank than in a retail bank or in asset management. Column two of the chart below shows the distribution of people earning €1m+ by industry. Interestingly, around 46% of investment bank employees earning €1m+ in Europe aren’t identified staff.
4. You should work in the Netherlands or Greece (EL) if you want to be paid in cash
In the UK, 64% of the pay of people earning €1m is deferred. In the Netherlands and Greece, 35% is. However, there was only one person earning €1m+ in Greece and only 32 people earning it in the Netherlands.
5. If you want to earn a huge bonus, you need to be one of the best paid people in the industry
It might sound like a truism to say that if you want to be well paid in banking, you need to get a big bonus, but it isn’t. The highest paid bankers could easily be getting giant salaries instead. Actually, as the chart below shows, the more you earn in banking the higher your bonus will be as a percentage of your pay. Weirdly, the person on the highest pay bracket (PB018) received a bonus equivalent to 1,567% of salary, whilst those on the 12th highest pay bracket had bonuses equivalent to 2,518% of salary.
The EU’s 250% bonus rule, which came into effect in 2014, should be put a stop to all this. However, the rule only applies to identified staff and could yet be sidestepped.
6. If you want a huge bonus, you need to work in investment banking
If a large bonus is your prerogative, it also helps to work in investment banking. As the chart below shows, bonuses in other areas of finance are modest by comparison.
7. If you want to be a high earner with a high proportion of cash in your bonus, you might want to work in a control function
What with the European Union’s bonus rule, around 55% of bonuses paid to identified risk takers and managers in investment banks are in the forms of shares and other deferred instruments. Risk and compliance staff in control functions get more cash. This might be because their bonuses are smaller however…
8. If you want a guaranteed bonus, you need to work in an investment bank
Guaranteed bonuses are most prolific in investment banks. They’re a lot less prolific than they used to be though…
9. If you want a giant severance payment you need to work for an investment bank
The average severance package paid to individual members of identified staff in investment banks fell from €341k in 2011 to €241k in 2013. This was still considerably higher than other areas of finance, however.
10. If you’re confident of being a high earner in London, you might want to work in asset management rather than investment banking
London is where all the high earners are (see point 1), and as the chart below shows, most of those high earners are working in investment banking. However, there are also 244 people earning €1m+ who work in asset management in the City. And those asset management high earners actually earn more than the bankers. Their average compensation per head is €2.2m, versus €2m in investment banking.
Photo Credit: Frits Ahlefeldt-Laurvig