Looking forward, what will IB analyst comp/bonus be like at the BB's?

I know this is speculative, but the main question I guess is whether ompensation in 2006/2007 was an anomaly...

Will total compensation generally be lower than in 2007, or will they hold steady? My guess is that many FT analysts will see comp hover around 100K.

 

I'm wondering if anyone else has some educated thoughts on this. I think there's a few cases to be made:

-First, obviously, the banks have been hit hard and noone knows whether the recovery will be V-shaped or more prolonged. Thus, banks are trying to cut expenses as much as possible and this will hit anallyst bonuses.

-Hedge funds are failing and PE is not doing deals. Hiring pressure is not as strong and banks may not feel the need to pay to keep their workers.

-On the other hand, banks want to keep their analysts happy and analysts bonuses are much smaller than VPs, MDs, etc so it is easier to keep them up during bad times. In addition, bonuses paid out in Jan (for the higher ups) were not that bad at most firms and I know many analysts will be resentful if their bosses get paid and they get screwed.

-RE comparisons to 2001-2002 - Even now, there are many more opportunities to leave to hedge funds or private equity, given the growth of these industries in recent years. If this recession is not prolonged, banks take huge risk by underpaying because people will leave.

Also, cost of living is way up compared to 01-02, especially in NYC. A $20,000 bonus certainly would have been disappointing then, but now it would simply be insulting. If you would have asked me a year ago whether 90,000 is a good salary right out of college I would have said definitely, but after having to pay 2-3 times what I'm used to for everything, I realized that 90,000 is sufficient, but it would be crazy to work 80 hours a week - essentially two jobs - for 90,000 in NYC. If banks want to continue to attract new talent from the top colleges, they have to pay up.

-This last point, especially, makes sense to me and I would think that banks will not drop bonuses for first years below about $50k, considering that they were 90-100k last year. I honestly think that if banks are at all able they will make an effort to reward their analysts. Having said that, financial conditions are very bad and nobody knows the true conditions of many of these banks (I'm looking at you, Bear Stearns). We'll see in the next few weeks whether Big Ben and/or the purchase of some of these junk mortgages by the government can kick-start the economy. Here's praying for 0%... :)

 

"On the other hand, banks want to keep their analysts happy and analysts bonuses are much smaller than VPs, MDs, etc so it is easier to keep them up during bad times."

this statement couldnt be further from the truth. do you honestly think the banks care about keeping the analysts happy? they would replace you without blinking an eye if you left and if they could replace you for half the cost they'd do it even quicker.

 
analyst26:
"On the other hand, banks want to keep their analysts happy and analysts bonuses are much smaller than VPs, MDs, etc so it is easier to keep them up during bad times."

this statement couldnt be further from the truth. do you honestly think the banks care about keeping the analysts happy? they would replace you without blinking an eye if you left and if they could replace you for half the cost they'd do it even quicker.

Huh? If this were true why even pay bonuses? Everyone on here seems to have the idea that there is constant turnover in the industry, with people jumping between firms like it's nothing. I work in s&t not corporate finance so maybe it's different (though I doubt it), but people don't just leave and get hired like it's nothing. Banks spend an incredible amount of money training analysts (my HR person said that training costs averaged out to $30,000 per analyst). They also put a lot of time and money into recruiting. Finally, hiring/firing costs a lot of money, and more importantly you can't just hire an analyst and have them jump in the next day. At least at my firm, banks want to keep analysts...they aren't treated as disposable robots whose work can be done by just anyone.

 

Will it help that a lot of the losses incurred at banks have been paper losses (write-downs on securities, many of which haven't even defaulted), seems like paying out cash wouldn't be a huge deal since they would have to expense the options as well.

 

agree with alot of the above, but don't think comp will hit the lows of the last downturn.

pe/hf recruiting is getting under way, and assuming that headcount is not totally slashed over there, then they still have to comp people to keep them. (not on the buy side, but assume that head count has to stay the same or bump slightly as a result of the carry and to placate the LPs).

my view is 40-50 top tier is where we'll come out, but very much subject to change as converts are the only real thing getting done these days. if you're in the right group, M&A mandates will still be there, but groups that survived on financings will struggle. now that i think about it, should be pessimistic as most banks will probably converge buckets regardless.

 

That would just be insane. There are still deals getting done, just at much lower levels than what it was like previously. I would almost bet money that bonuses are not going to drop from $90K to $20K across the board... even $40K seems like quite a drop.

I think they may drop to $60K, that seems more reasonable... but even there who really knows.

One thing that is disturbing with all this is that the recession appears to be spreading well beyond finance now - friends at big tech companies, for example, were just laid off yesterday (!).

On the other hand, banks do have to keep people somewhat happy or even more people will start jumping to the buyside... who knows, this is all just idle speculation really.

 

Interesting topic...my question is do you think think there will be a wide variance in bonuses this year across different banks? Do you think those hit hardest by the current crisis will compete with the GS in terms on compensation for analysts? You have to consider that many people right now are just happy to have the job, due to the market, layoffs, ect.

 

I'm yet to start so I'm just guessing...

But shouldn't bonus be a pretty consistent percentage of revenue? Although firms decrease or increase that percentage over the years according to market conditions, if we were to project bonuses, wouldn't percentage of revenue be a good start? The 1st quarter earnings of GS, LEH, and MS are out but they are in no mean indicative of what will happen later on this year. Analysts estimates should be taken as a grain of salt but that's probably the best information we have. According to Yahoo Finance, average analyst estimates for GS is -6% for revenue and for LEH and MS are -25%. Is it safe to say based on these data, bonus would be down on average from 6% to 25% depending on firm?

Any thoughts??

 
kalikidd05:
I'm yet to start so I'm just guessing...

But shouldn't bonus be a pretty consistent percentage of revenue? Although firms decrease or increase that percentage over the years according to market conditions, if we were to project bonuses, wouldn't percentage of revenue be a good start? The 1st quarter earnings of GS, LEH, and MS are out but they are in no mean indicative of what will happen later on this year. Analysts estimates should be taken as a grain of salt but that's probably the best information we have. According to Yahoo Finance, average analyst estimates for GS is -6% for revenue and for LEH and MS are -25%. Is it safe to say based on these data, bonus would be down on average from 6% to 25% depending on firm?

Any thoughts??

Revenues are only one side of the equation. All of the banks are facing billions of dollars of writedowns - earnings are likely to be negative for at least the first half of the year. Bonuses as a percent of revenues would be much too crude of a measure to estimate analyst bonuses.

The more positive data point, for me anyways, is that associate/vp/md bonuses handed out in Jan/Feb were only down what, 10% on average? And this is including the MBS/CDO guys who got zero. I know that for traders on my desk bonuses were about stable with last year. These bonuses were handed out after most banks had taken significant writedowns and had a decent idea of their exposure to the subprime mess, so it's not like these bonuses were handed out and then the economy tanked all of the sudden - things had been bad for a while.

A drop of 10-15% would leave analyst bonuses for first years at 70-75K at least, if we assume 85-90k average from last year. This seems over-optimistic to me, but if I really think about it I can't come up with any real strong counterarguments to this last point. If MD bonuses had dropped 50%, yeah, it would make sense that analyst bonuses would drop to a similar degree, but they didn't...so...

 

You might be bringing in deals but firms are actually getting crunched. They can't really afford to pay those sorts of bonuses. Besides I'm sure dealflow is going to slow very substantially before bonus season.

 
charlemenge:
You might be bringing in deals but firms are actually getting crunched. They can't really afford to pay those sorts of bonuses. Besides I'm sure dealflow is going to slow very substantially before bonus season.

Do you work in the industry? Dealflow slowed substantially starting about 9 months ago...it's actually starting to pick up again, somewhat, and if banks ever start lending to each other again it will pick up substantially. That was my point - when bonuses for the higher-ups were paid, the banks essentially knew how bad their balance sheets looked yet bonuses were only flat to down slightly. Does it make sense that associate/vp/md bonuses would stay steady or only be slightly down, but analyst bonuses drop 50% or more? Especially since the total analyst bonus pool is so much smaller than that for the higher-ups?

BTW, we just had the largest IPO in history last week...banks are still making some money, economic activity has not stopped...

 

While nebanker may be right that bonuses won't get totally slashed, I don't think the argument about assoc/vp/md pay being ~flat is very persuasive. There's a greater incentive to keep career track people from getting disgruntled than analysts. Underpaying MDs in particular is dangerous because it's difficult to recover quickly if there's a coverage officer exodus of any size in a given group. MDs aren't easily transferable from group to group, nor is it easy to quickly plug holes by raiding other banks. Non-competes mean waiting out gardening leave, and to the extent that MDs have wealth tied up in their firm's stock, giving them incentive to give that up would be expensive and at odds with the cost cutting objective. Analysts can easily be transfered to different groups, if it comes to that, and are much more replaceable.

The other big variable is the difference in bonus cycles. Summer bonuses will reflect a period that began roughly as the credit crunch put the breaks on a lot of deal activity. YE bonuses for MDs covered a year that included a ridiculously hot first half of 07. Because MD pay is tied to whatever revenue they're attached to over the course of the year, the bank is going to engender a lot of resentment if they don't pay guys for the fees they generated before the slowdown. I'm sorry none of that sounds encouraging, and for what it's worth I'd be surprised to see 20k bonuses for 1st years too.

 

Just another analyst speculating here, but my group seems to think we'll see bonuses fall sharply.

I would LOVE to see my second year bonus stay flat to what I received my first year, but its terribly unlikely (and even that would be "down" given what 2nd years got last year).

Like others have mentioned, most of us cashed our checks less than a month before the credit crunch really took hold (last two weeks of July). So while senior people got paid for both a good half and a bad half, we will have at least 3 bad quarters, and likely 4 (the last of which does't matter anyway, as the bonus pool will be set before that info is in).

If I had to guess, I'd say wallstreetoasis' estimates are where we'll shake out. But that could be partially due to the fact that I don't want to believe that I'll make anything less than that!

 

WOW, this board is full of smart people but 99% of people's responses to this topic is WAY off.

Yes, bonuses will drop for you guys but if you did not get laid off you will NOT lose less than 20% of what you would have received last year.

1st Year = $45,000-$75,000 2nd Year = $60,000-$90,000 3rd Year = Get in at an MBA program or a buyside job

 
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