If you're working in financial services and wondering how best to structure your career, then wonder no more: a new study from the Wharton School and McGill University suggests you need to spend the first five years working for a high status investment bank (like Goldman Sachs). Thereafter, you are free to do as you please.
In the same way that the first three years of a child's life are said to be crucial to brain development, the Wharton academics identified that the early years of a banking career are essential both to future earning power and to future career development. Bankers who spend the first few years of their careers at high status firms can earn around 15% more by the time they reach VP level.
The academics based their research on a comparison of Vault's rankings for investment banks by prestige (AKA 'tier one', 'tier two' and 'tier three' banks) with the career outcomes of 429 MBA alumni who had held at least one job in the investment banking industry. They also looked at the career aspirations of 280 MBA students who were going into banking. Pay wasn't the only variable affected by prestige: predictably, the researchers also found that when Goldman Sachs or JPMorgan bankers switched employer to a low status firm, like Oppenheimer, they were likely to go in a rank higher than their low-prestige rivals.
As reflected in the chart below, the researchers found that MBA students applying for investment banking jobs were very aware of the prestige premium: the reputation of the firm was the key variable of interest to students when they were contemplating their careers.
What aspiring bankers look for when choosing which job to go for
Prestigious banks pay poorly (to begin with)
The researchers also found that high prestige investment banks exploited applicants' interest by keeping pay low for junior staff. As the graph below shows, high prestige firms pay less than low prestige firms for the first two 'ranks' of an individual's career. Thereafter, prestigious firms must pay more to retain their experienced staff who can cash-in on the prestige premium and easily work elsewhere.
For this reason, prestigious firms like Goldman Sachs and JPMorgan will quite often pay less than or equal to market rate to their juniors and above market rate to their senior bankers. However, don't be tempted to move too soon - the Wharton researchers found that time spent a high status firm only impacts bankers' earning potential and employability if they stay there for five years or more.
How your pay will progress at 'high prestige' and 'low prestige' investment banks