Another post from today got me thinking. Lower pay over the years, bonuses and base not really matching inflation, more saturated and competitive PE industry at exit, and WFH post COVID making it more normalized to work all hours of the day, and being forced to often live in ultra HCOL cities...
Is there a general decline in finance at the moment or am I just exaggerating? Just want to start a discussion.
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Of course there is an argument to be made. However, you will probably need To nuance this question a bit. In the long-term, is M&A deal flow really going to decrease? I personally do not think so. However, I do believe that the nature of the industry will change and thatpricing may decrease due to technological efficiency and a more level playing field with more bankers that are able to become freelancers later in their career. Would love to hear the thoughts of someone who is in the space though.
Entirely agree, especially in the middle-market. Large cap M&A, however, I believe will not experience this transformation (second part).
Deal flow will continue to rise at a steady clip but the pay will continue to decline, especially for juniors. This is because:
- Competition will continue increasing and advisory work will become more commoditized, suppressing fees
- As in with any mature industry, seniors will slowly take more and more of the pie for themselves and pay juniors the bare minimum so they won’t quit. This is already happening
Someone else mentioned in another thread - the overall performance of IB and bonus pool probably hasn’t declined as much as you think. It’s just that the top deal makers are taking more of the pie for themselves.
hasn't pay increased for juniors since covid?
Absolutely not, at least for the BBs. For context, I’ve been in IB since 2019 so that’s the extent of what I can confirm. This is what happened in my group (large BB):
- 2019: Relatively normalized year for the bank. The median associate received ~90k, 120k, 160k bonuses for Aso1-Aso3 respectively. Probably the best and most “fair” year I’ve been around to see
- 2020: Great year for the bank. Bank made an excuse to lowball us by saying they didn’t want to pay record bonuses at the same time “normal” people were struggling during the pandemic. This of course made no logical sense because the bank still reported record profits publicly
- 2021: Insanely good, record breaking year for the bank. Juniors were paid well on absolute terms but not commensurate with how insanely great the year was. HR rationalized that we pay slightly below “street” during good years to have a cushion for bad years
- 2022: bad year for the bank. To their credit, bonuses for juniors weren’t terrible (in line with 2019 above) but the MDs had to give up an arm and a leg to make that happen
- 2023: another bad year for the bank. Most MDs were pissed from the year before so they didn’t protect juniors from the pain. Juniors were paid laughably low bonuses
- 2024: solid IB performance for the bank, and our group’s 2nd best year ever after 2021. TBD on outcome but will probably be similar to the shit other BBs have been paying, and the excuse will be that although IB did well, the rest of the bank’s performance is less than optimal/flat YoY
You can see a few takeaways:
- Pay is kinda all over the place YoY during this period, but inflation during this time period was rampant. So pay has declined fairly materially on a real basis
- Banks/HR always will try to screw you and pay the bare minimum amount they think will be sufficient to maintain headcount. They come up with those numbers first, then create the narrative to support the lowball (we don’t want to pay you when “normal” people are struggling, the group didn’t do well, your group did well but the rest of the bank didn’t, etc)
- BBs won’t match street when things are good in the guise of creating a “cushion” for when things are bad, and when things are bad you still don’t get paid. So you basically never get paid street. This might be unique to the BB I’m at
Sorry for the rant, but hope that helps provide some context around how junior compensation has eroded and the levers the banks try to pull to justify it. I quite frankly am not sure if staying at a BB is worth it given the other opportunities available. I’m looking to lateral to a “less prestigious” or MM bank this year. Comp at worst will stay flat and I’m basically guaranteed a slight uptick in WLB.
Right on the ball here, we are already seeing this. Also a wide discrepancy in senior pay; all the really elite ones are either BB group heads or leave to EB's since pay there is so much higher given the business model. BB's are increasingly becoming the place to build your book, creds, and relationships before dipping once you are a rainmaker to take advantage of better economics at EB's. On the bright side, it makes it easy to find whitespace in niches for areas for ED's like me as these MD's leave to try to start building creds from the bottom down. I think BB's are increasingly being MD machines with this consistent recycling of MD's. BB's most likely have to start being more competitive with senior talent to retain the tippy-top MD's as there can only be so many group heads before that title too starts losing meaning. Also it's not like group heads leave less, it's just more of an incentive to get to them stay to head the group and makes salary more competitive with the EB's. I am sure the senior leadership at the BB's are aware of this, and think within the next 5-10 years we'll see senior MD pay increase whilst junior pay barely does.
Good take. What do you think drives the higher economics at EBs? Are the teams just leaner and more efficient?
The more I read about (and see first hand) the trajectory of BBs, the more worried I get for anyone who is not a MD. Sounds like the BBs can and will be most focused on paying the top MD talent, and then the rest of the team will get the scraps. Correct me if I’m wrong, but most BB groups get a bonus “pool” to spread around and if there’s a lot of guaranteed money tied up in attracting MD talent, it doesn’t bode well for everyone else.
No shit. Is the sky blue?
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