Wall Street Comp Structure - Banker vs Broker
Interesting article how brokers/traders are paid FAAAR better than bankers when you compare how much money they make for the firm. They mentioned that in an acquisition a 100% retention bonus is industry standard. So you made $1 million for the bank, you get a $1 million retention bonus. They also noted that UBS paid as much as 260% of revenue production. Then compare an M&A banker that brings in $75 million for their bank and they get a $5-10 million comp.
I have a few theories...
#1- its far easier to be an all-star trader (logistically, not easier as in requires less talent). When you come in on the ground level, there is opportunity for a trader to quickly start making enormous money for the firm. Whereas a banker, will most likely not have any capability of sourcing business and generating revenue (fees) until he's close to the MD level. This has facilitated traders rising through the ranks extremely quickly by making enormous profits, inherently front-loading the firm's management with traders/ex-traders.
#2- the logistics of trading is such that (and correct me if I'm wrong) a trader can generate profits with little supporting staff (relative to IBD). While an MD banker needs an army of analysts, associates, and VPs to support his deals and see them through to fruition. This basic difference in the structure of these 2 divisions allows S&T profits to be attributed mainly to the traders generating the profits, while IBD has significantly more overhead.
#3- traders generate revenues basically through their own competence, and while IBD bankers may do the same, there is a significant weight associated to the brand/goodwill of their bank. While a banker at Goldman Sachs TMT have his own relationships, there is no doubt the Goldman name helps snag some of those whale clients. Traders however are generating profits which are for the most part in no way using the banks name as a catalyst (outside of leverage they wouldnt otherwise be able to get and a bankroll they obviously can't sustain themselves). This is demonstrated (IMO) by the large proportion of all-star traders who end up starting up a HF or defecting to go to work for a HF. Compare that to the relatively small proportion of all-star bankers who end up opening up their own shop.
Anyone care to weigh in?