Will IB comp ever return to prior heights?
It has been my observation that different fields get "hot" and then fade out. It was hedge funds, then IB, now its PE. Do you think this will return to the mean at some point? When will that be? What is the mean?
It is also true that banks are fighting for talent from tech now, which has led to some uptick in comp. Will this continue?
I understand MDs/Partners making more before, but are junior level people really making less now than before? Everytime I see a comp thread for a few years ago, the base or total comp is always less the further back you go.
Not exactly sure. Heard some figures for Associates/VPs making pretty insane bonuses. Maybe at analyst level it wasnt that crazy.
There was a lehman document posted here with total comp but prior to bankrupt saw a top bucket 1-2 year associates make $450k+ all in
I would say that salaries have generally not kept pace with the cost of rent and the size of student loans in major cities
Agree with Leon Dragunov. There’s stories of associates clearing 300-400k back in 2006/2007 and right before the dot com bubble.
post-MBA or associate level might continue to increase comp as less MBA grads or people more likely to be nearing marriage / kids are less likely to consider IB. I’ve seen very few HSW MBA in banking recently, but S has always been super light on banking grads or just tech coverage focused.
analysts are dime a dozen and there’s no need to pay them more if they leave within 2 years, but that’s why A2A has become more enticing
My MD told me to this day he has never received a bigger bonus than his bonus in 2006/7. He said even after tax it was still enough to buy a mansion in any city outright with no mortgage alongside any super car.
He said he now earns on average a quarter of what he did then and on a good year he might make half of it despite him being 10+ years more senior now.
My guess is his bonus in 2006/7 was probably between $5-10m (which don’t forget that amount of money was worth a hell of a lot more back) and I assume he makes bonuses around $1-2m now.
He also said it was a different world back then not only in earnings potential but other perks, he said he could put almost anything on the corporate card, he would take clients abroad for holidays and he’d bring his family with him and expense it all or he’d take clients on night outs and spend $10k+ in one night on the corporate card. He also said ‘gifting’ was a thing back then (something very illegal today) i.e clients would buy them presents most common example is a Rolex.
IB will never be the same as it once was.
He will probably retire in the next few years or so.
Both buy-side & sell-side comp has been getting squeezed since the financial crisis - could even argue the dotcom crash. The sell-side, specifically bankers and traders, played a more powerful role in an era of great information asymmetry where they legitimately made markets and closed deals that wouldn't have existed otherwise; fat fees were justifiable and easily attributable to certain employees. Hence the massive bonuses and then some. But the rise of computers and rapid growth in tech are the driving forces behind the increasingly automated business models we now see. In finance, institutional, corporate, and consumer clients all have far easier access to far more information when making their decisions. Trending toward a more perfectly competitive market, the fat has started getting cut; rainmakers still exist but much less and on a more meritocratic basis. You see it as well in hedge funds and mutual funds lowering fees to stay competitive with cheap, passive investment products - they still have outperforming PMs getting paid like kings, but the roles below them (ie- VP/principal/associate at a HF, or research analyst working under a mutual fund PM) are now more competitive and paid less. I don't see how the industry comp structure reverts back in any meaningful way. PE is relatively unaffected by this trend for a myriad of reasons - but I'll stop my rant here. Apologies if I just stated the obvious but, imo, the fundamentals listed above are often overlooked when discussing declining comp structures in finance.
thanks, really appreciate this response. really insightful.
Whoever wrote this writes a nice story...unfortunately, more than half of what is written above is wrong.
What's right: Companies are getting smarter...but to be clear, just the big ones. The big ones have in-house consultants and bankers. It's shocking how quickly that internal capability drops off when you move out of the F50 (not F500). And as a Boglehead who is otherwise uninformed of HF/AM world, I guess that stuff is right.
What's wrong: Computers and tech automating business models has very little (in the grand scheme of things) to do with it....it's more to do with companies growing / investing in internal capabilities of consultants/bankers. Also, small companies have weak in-house consultants/bankers, if they have anything at all. So bankers still help make markets (NOTE: I fully recognize there's far more to it than bankers/consultants, but don't want to overcomplicate). Also, PE fees will inevitably get cut down as returns dwindle due to greater competition and elevated asset prices, thereby cutting carry...but this will take ~3-6 years to play out. Don't think folks on this forum talk about it because of the herd discussion on the virtues of PE. Finally, banking comp has already been squeezed. In fact, many banks increased -- not decreased -- base pay for Associates a few years ago. So would be odd for comp to dwindle further...
I could've done a better job articulating some points as you seem to have misinterpreted a few.
- In the grand scheme of things, tech has almost everything to do with it. The services and information it's provided to everyone has enabled more strategic decisions to be made in an independent and well-informed manner that is less reliant on external advisors (*not saying they are no longer reliant*). This phenomena is likely what's allowed companies to build up the in-house practices you mentioned in attempt to become more streamlined.
- Banks still serve a value-add role, I never said bankers don't still help make markets. I was getting at the fact there are no bankers making markets at significant scale for new asset classes and becoming billionaires in doing so like Mike Milken. There are no more banks operating effectively as a levered hedge fund like Lehman.
- I didn't say sell-side comp would continue to dwindle, but the nominal growth it's experienced as of recent will never sufficiently make up for the compounding effects of the comp structure overhaul post-financial crisis.
- I never commented on the future of PE comp; not sure why you extrapolated my assessment of PE comp in its current state, but I don't disagree with your points there.
I sense we're viewing the issue through different lenses - especially for the first point. Happy to agree to disagree as well, but the points in my original post are too big picture and rather matter of fact to be stamped as objectively wrong.
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