Finance and the Destruction of Human Capital

Do any of you ever sit back and think about how god damn inefficient the 70+ hour work week is? I do.

First off, the academic literature demonstrates that marginal productivity falls to roughly zero after around 50 hours a week of work, for the average person. So we are literally just wasting the next 20+ hours for no additional output.

Furthermore, the marginal cost of work increases each hour you work. And in my view, this is an exponential increase.

Going from 50 to 60 hours means you don't watch as much TV, or don't see your friends as often. Not a huge deal. Going from 60 to 70 means you now have hardly any free time. You may not even have time to work out regularly or see your friends. Going from 70 to 80 hours means you are now sleep deprived and have zero free time. I don't know anyone that works this much and is remotely happy (although I'm sure such psychos exist somewhere lol).

So to recap, we put up with HUGELY NEGATIVE differential utility working 70 hours rather than 50, and on average see no increase in work output. Seems optimal to me, lol.

Of course, I've seen many arguments that the long hours are simply unavoidable, but I think that's BS. In my view it is mostly a cultural thing, where some assholes agreed a long time ago that we should all work 70+ hours a week, and so we do.

From my experience in PE, I feel an associate could easily accomplish most of their weekly tasks in about 50 hours. Obviously there will still be the occasional 100-hour weeks when deals heat up, but I think it would be easy to get to a median week of 50 hours if a) people realized that 50 hours is the optimal amount of work to do for most people, and b) actually tried to make 50 hour weeks the norm. Whether that means hiring more people, being more thoughtful about which things are actually valuable enough to spend time on, or something else, I don't know. But we could figure this out, if we wanted to. Instead I'm sure we will keep on destroying human capital - hey, as long as it's not financial capital it's fine, right? 

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Comments (27)

Sep 26, 2021 - 12:53am

I think the main issue is being able to accurately plan for workflow. If the group knew they would have X deals per Y period, each deal would take Z hours and each analyst could spent A hours on each deal, then it would be a breeze to figure out.

However, the work is highly project based, seniors try to strike when the iron is hot, and they try to squeeze out an additional few hours of work to protect their margins. 

I agree that the math should be easier, but it just isn't. 

Think about the counter, the bank hires extra analysts so no one works more than 45 - 50 hours a week but there isn't enough work. So now you have a group of people sitting around, not contributing revenue and increasing expense. Bonuses go down, everyone is pissed.

It's a difficult thing to forecast, especially when senior people don't care about how the juniors get the work done as long as it's done.

Sep 26, 2021 - 6:30am

Totally agree with your points. Also to further augment your first and second paragraphs, none of this is helped by senior bankers being negligent in assigning work in a timely manner. So many times I'd receive a staffing forward at like 8PM with the original email having been sent at 9am or something. 

  • 4
  • Senior Consultant in Consulting
Sep 27, 2021 - 8:49am

I disagree. Consulting is very similar in that you have an incoming pipeline of projects and you assign a probability of successful conversion to each. You then back calculate the number of consultants you need, for how long and fill in the gaps accordingly (by hiring more or re-assigning people to other projects or internal initiatives). Based on historical track record, you can sort of predict how many deals will come from a given client or Partner per time period (month, year or quarter). And since M&A is quite cookie-cutter, you know how the process will be on most deals so you can also leverage that to improve internal organization. I don't think anyone has excuses as far as organization goes. The main issue is this false sense of urgency with everything. I can't tell you how many times friends of mine have sent stuff off for review at 18:00/19:00 and got comments back at 22:00 with a 09:00 deadline the next day. Jesus, just chill. Send the comments over the next morning and let the Junior have the evening off. We aren't talking about 1-2 weeks until deal closure cases either, but 3-4 months out with no immediate sense of urgency. 

Oct 12, 2021 - 7:38pm

Agree but it's simpler than this.

The work week hours right now, whatever you think they are, are in equilibrium more or less. If some firms make their Jrs work only 50 hours there will be outperformers at other firms deciding to work more hours and so the cycle goes until where we are today. In equilibrium. Not much has changed since people have focused on this topic.

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Sep 26, 2021 - 4:02am

Unfortunately once you come to the conclusion and start to push back you might find that you are out of sync with the PE culture.What are your thoughts on lower bonuses to be able to hire 20% (as an example) more people? Though the point above is well taken that deals are unpredictable so a PE fund needs enough resources that can "step up" when needed.

  • Analyst 1 in IB - Gen
Sep 26, 2021 - 8:04am

Mate there is nothing "productive" about either a) funnelling other people's money or b) being some middleman. People work hard and use cryptic terminology in finance to justify that their jobs are actually worth something. We all know that, at the end of the day, we're just greasing the wheels of money and taking a cut. No matter whether you work 40hrs or 60hrs or 100hrs you're still greasing the wheels and taking a cut. Your pay and hours aren't really correlated.

If you want to truly earn something for your productivity go and build something or be part of an industry that builds something. Otherwise, who gives a shit? White collar workers in service / process fields talk so much about "productivity" as if it matters. It really doesn't. 

Sep 28, 2021 - 12:03pm

"Jesus, Seth. Listen, if you really wanna do this with your life you have to believe you're necessary and you are. People wanna live like this in their cars and big fuckin' houses they can't even pay for, then you're necessary. The only reason that they all get to continue living like kings is cause we got our fingers on the scales in their favor. I take my hand off and then the whole world gets really fuckin' fair really fuckin' quickly and nobody actually wants that. They say they do but they don't"

Sep 26, 2021 - 3:33pm

Cant change it (the culture) unless collective action is taken, which will never happen because there will always be some mf willing to work 90hour weeks if you don't. Ofc you can start your own firm and do like a 50h cap per week, but then again you employ people and (most) people usually do the minimum to meet performance targets, so how do you make sure that you really get your money's worth of productivity out of your employees? you measure it by the hours, because that is the most easily accessible objective metric you have, however wrong and retarded that is. 

Sep 27, 2021 - 10:39am

it's 100% a cultural thing, because people are greedy and it's a self fulfilling prophecy. if company A works their analysts more and has more output or is getting more at bats to close deals, they have more deals closed in absolute terms, even if they're not as productive (deals/hours worked). company B sees this and thinks "WE GOTTA WORK MORE" and then company C sees it and goes "shit, we're only doing X0 hours a week, we need to do more!" and there you have it. also because you have people who don't just do it for the love of the deal they do it because they got a $500k bonus last year but a guy from their MBA class got $100k more at another bank and because the first guy lives in an expensive neighborhood and is externally validated instead of internally, he's on the hamster wheel of just wanting MOAR MOAR MOAR without taking the time to realize all of these long nights will lead to nothing by hypertension and divorce at 45, unhealthy relationships with children and alcohol, an enviable net worth but with no hobbies/friends to enjoy it with, but a great stub come bonus season.

until you get experience, outworking competition is important, and this will require a lot of hours (I pulled longish weeks when I was in the building stages), but beyond that it's just purpose-less self mutilation because that's what the culture is.

Most Helpful
Sep 27, 2021 - 6:43pm

thebrofessor

the first guy lives in an expensive neighborhood and is externally validated instead of internally, he's on the hamster wheel of just wanting MOAR MOAR MOAR without taking the time to realize all of these long nights will lead to nothing by hypertension and divorce at 45, unhealthy relationships with children and alcohol, an enviable net worth but with no hobbies/friends to enjoy it with, but a great stub come bonus season.

I remember being an analyst and pointing to the pale, sunken-eyed, doughy, grumpy souls and saying "yeah well that won't be me."

It never happens overnight. You realize a stronger cup of coffee gets you through another hour of the afternoon, a stronger cocktail calms you down after a late night, your workout schedule goes from 5x/week to 4x/week splits to 3x/week full-body, and then you have a kid and take a break from the gym, and then you pick up but really only for 2x/week...

Or you see your bonus grow three years in a row and you're pumped to start cranking come January again. The partners tell you you're on a partner track if you stay on your trajectory. You catch yourself telling your junior staff not to spend all night on something but to have it on your desk in the morning. You stay in the office not because someone tells you to, but because you feel like you need to. Hell, you even want to. You convince yourself that you don't need to go to ALL the music recitals or soccer games as long as you get to MOST of them, because what difference does it make, really? You don't notice that your wife stops arguing with you to spend more time with your kids or with her or with your parents or... anything at all, come to think of it you haven't argued about much lately because you don't talk about much at all lately.

Something snaps you into a hard self-reflection. Could be a high blood pressure diagnosis from the doctor, or the passing of a loved one who you didn't spend as much time with as you wanted, or a good friend going through a nasty divorce. Something that wakes you up and you look at your pale, sunken-eyed, doughy, grumpy self in the mirror and go "man, I didn't think it would be me."

It's easy to look at the final outcome and say "I don't want that." It's much harder to look at the incremental decisions along the way and say no to those. 

"Son, life is hard. But it's harder if you're stupid." - my dad
  • 40
  • Associate 1 in PE - LBOs
Sep 28, 2021 - 2:06am

How much of this anecdote is applicable to solely hard workers, though? Especially in IB/PE, I feel like I see as many fit/seemingly well self managed people as I do those in your story if not more. Sad saps like the one in your story also exist in fair amounts across all lines of work including those with conventional 40 hour weeks.

Not sure how old you are/how far you are in your career but do you see yourself in the guy in your story? I like to think no for myself but I guess that's the catch 22 of it. I'm in LMM PE and I like to also think I chose this side of PE to avoid becoming the guy in your story but sometimes coming out of rough weeks I just don't know.

Sep 27, 2021 - 4:37pm

don't be a pussy, there are 168 hours in a week,  Xavier Rolet is right about hiring hungry and street smart workers instead of entitled pricks, I won't mind working 110 hours a week. oh wait I do work those many hours 

Sep 28, 2021 - 2:38pm

__DollarBill__

don't be a pussy, there are 168 hours in a week,  Xavier Rolet is right about hiring hungry and street smart workers instead of entitled pricks, I won't mind working 110 hours a week. oh wait I do work those many hours 

Many of us did, but for how long is it sustainable? 
 

Cranking out 100 hours as a single analyst with no kids is one thing. What happens when you get in a relationship, have kids and try to normalize life? 

Sep 27, 2021 - 7:18pm

You are right, it is not sustainable at all and leads to heavy churn.

At our portfolio companies, I aim to keep our non-executive staff at roughly 55 - 70 hours a week. Unless you are making pre-tax $250,000 - $300,000+, it's VERY hard to pull off 80+ hours without a "support" team that you either pay for or is related to you/married to you. Like many pointed out, not many people can reasonably perform at over 70 hours a week. 

Executives are different. Daily work involving unblocking your direct reports + meetings + fires will eat up the first 8 - 10 hours a day. After that it's time to build systems to grow the company/strategic work. Before standard work hours or after hours are the only times you have to do deep work. This is assuming you are aiming to grow at least 2x - 3x per year. Anything below 30% YoY rev wins is fairly easy to manage and you don't have anywhere near as many fires, need to constantly hire, etc... which makes the workload far lighter. The BIG difference with executives though is that they should naturally have more time as they are paid more, which means they can do things like pay for expensive meal prep services, babysitters, etc

One big thing I have noticed when managing people across any function and any pay level is that exciting work is critical. They need to be passionate about what they are doing - and they will burn out very quickly if they aren't. You also need to keep their role interesting with a healthy amount of exciting and novel work, even if you know they won't nail it or add value. Think bringing juniors on calls where they add zero value but are peeing a bit b/c they are on a call with XXXXXX or letting them take first stab at a project you know they'll fuck up; need to ensure this work isn't just busy work though!!! You must always illustrate to everyone EXACTLY how their work will add value. It is surprisingly unclear for a lot of people & fundamentally bad management!!!

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Sep 28, 2021 - 6:29am

This makes being an executive sound kind of sad tbh. So they have to work more than non-executive staff, plus all the extra money they earn is just used to pay for things that they wouldn't need if they didn't work so long. 

Sep 28, 2021 - 7:12am

It's not just the hours but the nature of the work. The Executive work feels different (is different). Meeting with a target over drinks and dinner at a nice restaurant counts as work. It's also very important as it drives relationships and deals. Spending time with someone at The Ryder Cup is work. Communicating the mission and delegating the work is work. It's just not mind numbing work.

Sep 30, 2021 - 3:45pm

Arthur Digby Sellers

Do any of you ever sit back and think about how god damn inefficient the 70+ hour work week is? I do.

First off, the academic literature demonstrates that marginal productivity falls to roughly zero after around 50 hours a week of work, for the average person. So we are literally just wasting the next 20+ hours for no additional output.

You mean total productivity is zero from hour 50 to hour 70? Marginal productivity of zero implies that the productivity at hour 50 and hour 70 is the same. 

  • Associate 3 in PE - LBOs
Oct 19, 2021 - 2:51pm

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