Why do investment bankers get paid so much when their work is so easy?

jnhadekjs's picture
Rank: Orangutan | banana points 363

And don't tell that they work too long. I know a manager at walmart who work as much as IBankers and makes just 80k. She has also a degree and been working 12 years in the same company.

Even high schoolers with passion can do IB if you teach them some accounting and corporate finance and teach them excel. That's why there are so many analysts from irrelevant backgrounds and majors

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Comments (96)

Dec 8, 2018

It's not so much the difficulty of the work as the sacrifice of any life outside of the office throughout the entire year...

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Dec 8, 2018

Because companies pay them tens of millions on many deals

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Dec 8, 2018

you might just be trolling but in case you are not, no one gets paid alot for no good reason, if what you do matters a lot and the supply is low, then you get paid a lot, no matter how easy it looks.

-doctors get paid a lot because your health matters
-lawyers get paid a lot because the legal system matters. without it everything goes wild
-investment bankers get paid a lot because they are the the engine of capitalism, the steroid of a market economy. Without the bridging of capital an economy would run very slowly. and a fast growing economy matters to almost everyone in it.

And not a lot of people can make it to be any of the example above. Only a small fraction of the whole population do. that's why they get paid a lot.
Edit: this is not to compare the necessity and pay of the profession above. These are just some examples. You can argue that among these those that pay more matter less and vice versa. And out there there are other works that matter more but also get paid less etc... but that would be a different argument.

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Dec 8, 2018

Agreed, but maybe the comparison with doctors and lawyers is a bit exaggerated?

Dec 10, 2018

How so?

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Dec 8, 2018

This is one of the most ridiculous claims ever

Doctors save lives and they are paid less than IBs
Lawyers ensure justice and equal representation towards the state, and even the corporate ones are paid less than IBs( don't even think about prosecutors etc)

" The engine of Capitalism" is a self-loathing, egocentric statement that deals with the cognitive dissonance of having no life outside the office and getting paid so much while doing monkey work.

Instead of trying to find what IB does that is valuable for the society, take it the other way around. What would happen if IB did not exist at all? Nothing. Everything would be the same. Granted, a bit more friction on the M&A deals and maybe a bit less efficiency. But at the end of the day. Life would continue as normal.

IB just parasitically lives on the mythical notion of "Synergies". Companies are paying percentage fees to IB to realise them(if they ever). Money which is peanuts compared to the amounts involved in a deal, but a huge amount in absolute terms.

Granted that the matchmaking is not an easy task for those who will raise this issue. But who is making the actual matchmaking in the bank? Surely not the undergrad guy who is shy to talk to an interviewer but gets 100k+ afterwards.

So yeah, before you start comparing yourself to some actually useful professions for society, do a reality check, and just feel astronomically lucky that you go to be among a small team of people that achieved sustainable parasitism.

I am ready for the monkey shit from butthurt hardos

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Dec 8, 2018

I was just quoting examples. I did not necessarily compare lawyers and doctors to IB. If you want to compare there are so many more line of works that could be regarded as necessary but are paid much less. Soldiers, firefighters... for example. And that would be an entirely different argument - one that I don't want to get in right now.

Most Helpful
Dec 10, 2018

Lol, this is legitimately one of the dumbest comments I've ever seen on this website. You sound like a college kid who struck out trying to break in to banking (not saying you are, just that you sound like one). Now that you're triggered I'll get on with addressing your comment.

First off (as the OP addressed), there was no comparison being made between doctors, lawyers, and investment bankers and how much each profession "deserves" to be be paid. Basic economics dictate how every profession is paid, deal with it. (Not to mention doctors/lawyers are paid VERY well, and have a more steady/reliable career path - there's more to a comparison than just looking at straight up salary numbers).

Secondly, do you genuinely believe Investment Banks serve absolutely no purpose, and if they were to disappear that "Everything would be the same"...? This claim is seriously so ridiculous that I'm questioning whether you are even remotely educated. Trillions of dollars have been raised by companies (you know, the actual purpose of investment banks - to raise capital) through investment banks. Claiming that investment banks serve no purpose is nonsensical.

You are correct that the junior bankers are not the ones doing the matchmaking for a bank (Obviously, not sure why this even needed to be pointed out?). However, junior bankers are the ones doing the grunt work, building the models, and putting together all the materials in order for the senior bankers to do their job. In order to convince college kids to do this job, they must be compensated well - hence the 100K+ salaries.

Luckily, you are only a "useless" junior banker for a short period of time before moving up the ranks and becoming the one doing the matchmaking (which, I assume, isn't a useless profession in your eyes). Just like doctors and lawyers must go through years of additional schooling and residencies/clerkships (Totally useless professions, right?) before they add value at a more senior level, junior bankers must go through years of grinding away on excel before they can begin adding level at a senior level.

Jesus.

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Dec 10, 2018

Unfortunately for your ad hominem, I am neither a college kid nor someone who tried to get into IB.

Well, the companies raised trillions with IBs "advising" them. If IB wasn't there, they would for sure find a way. And as I said, yes, there is some inefficiency over there but it still doesn't warranty this amount of money.
The culture of money is what mainly destroys a mediocre profession like IB.

Making shady deals with governments, helping clients avoid taxes(illegally), creating toxic financial instruments ( that lead to a FC ). These are things that affect billions of lives, coming from an industry that has almost no significance for the real economy. Surely something is wrong.

Finally, I am saying that dealmaking is not as useless as being an analyst and formatting slides. Not that it is useful. I won't continue the comparison with the other 2 professions since you asked me not to, and then you started comparing again when it was in your favour ;)

P.S Most people never make it to the dealmaking position. They quit going to a position that later on employees IB ( you know, a circle )

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Funniest
Dec 10, 2018

Your understanding of IB resembles that of a college student, so it is easy to see why one made the assumption

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Dec 11, 2018

Tell me then messiah of the Economic System. Enlighten me, please

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Dec 12, 2018

How is it so difficult for you to understand. Bankers make most of their money by earning a percentage of the transaction they complete - their fee is highly performance-related. Meaning they earn the kind of money they earn by doing big deals and many deals.

Executives don't make deals everyday so whenever they do a deal, they need someone who does make deal for a living to advise them. The fact that even some large corps with inhouse experienced dealmakers still reach out to external bankers when they do large transactions speak the necessities for bankers in dealmaking.

Also, a lot of time the fees bankers earn on a transaction does not only reflect their works on that particular transaction. It also reflects everything the bankers do for the clients before the transaction. Sometimes, bankers advise executives for FREE for many years, so when clients do a deal, the bankers get the mandate to advise on the deal. "The banker at the large firm had done a ton of free work for us for years so we threw him a few million dollars as bone" - to quote an executive in an article from the FT.

If what you say is these deals would have happened without I-banker anyway, I-banking has been around for a very long time. If the fee they earn is not justified and they are unnecessary for their clients, they would have been extinct. Instead they only grow bigger after time. Market economy is almost as efficient as it can get. No one hands you hundreds of millions of dollars if you are of little services to them.

Sure sometimes some bankers do shady deals and advise clients on tax avoidance and get reckless with financial products etc. But many professions have two sides, not just banking. I can go all day on how evil lawyers, doctors... could be sometimes.. still doesn't mean they don't do good or are unnecessary.

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Dec 17, 2018

You come on here and make a wrongful assumption on what ib is, get corrected, and then continue to ignore what the subject matter experts tell you. You don't want to be "enlightened", you want to be right about the value that it brings, but you can't because "value" is subjective. Get over it, it's fine, you'll live, chill out.

On a side note, go ask any seasoned businessman/woman in a third world country how instrumental having an efficient and functional capital markets is to an economy or growing business. I'm going to take a wild guess and say that you've never actually lived in a third world country much less try and create a scalable enterprise in one. It's easy to see why your views are such if you've only ever lived in developed economies (it's hard to appreciate something that you've never had to think about), but the basis for why banks, commercial and investment, exist is really too simple for you to be this ignorant on the subject....imo

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Dec 20, 2018

Man, sorry, but what you say is completely deranged. I did work in 'third world countries' and I am living in a developing country. I also created businesses in both, although not sure what do you consider big enough to be "scaling".

But clearly, your view from the high tower is being myopic enough. People in these countries have far worse problems than having rich ass businessmen with no access to capital markets, just wake the f up.

I agree however, that value is subjective. And you know, in philosophy, you can't measure how good is something for society. But you can easily measure if something is bad. And IB, is bad.

And I don't really care about the specifics, because talking specifics against people in IB already is like fighting a pig in the mud. You can't win. I raise you something more high level.

IB is a job that it is easy or/and relationship based. You don't do science or something. But , it propels people who know how to "close deals" and " look at the numbers" to the top 1% of the global wealth. NO MATTER how important for the market is this profession, there is an obvious problem on who gets rich and who doesn't. And i honestly ask, there is this unofficial law that states that you get better reward the higher the risk. What is the risk of an IB MD vs a risk of a soldier, or a doctor in a third world country? Doctors and soldiers are 2 of the oldest professions and super important for the functioning of our society. Yet, the wealthiest 1% is made of ex bankers or bankers.

I know that this is not a direct answer to the usefulness of the profession, because as you said its subjective. But it is an answer to why this profession is skewing our society in a bad way

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Dec 20, 2018

I agree with some of what you said. Access to capital is definitely the least of most people's problems in these countries. That wasn't my argument though. I was showing that banks do in fact add some sort of value, their employees wouldn't be payed so well otherwise. I can elaborate more on this if you want. As far as whether IB is "bad", that's a decision people can make on their own, makes no difference to me. On the subject of pay, I agree with you, doctors don't get paid enough. Soldiers, debatable (ex: do soldiers in north korea "deserve" to be paid a lot? Or do you just mean American soldiers? And if yes, why? What makes them so much more worthy than N.K soldiers?). Personally, I don't believe in higher risk equals higher reward either, the world doesn't work that way in my opinion. It sucks, but the worlds not fair or morally correct. Lastly, greed, among other things, is what skews society towards evil, not any specific profession.

Dec 11, 2018

When you sell your house, do you use an agent? Do they take a % fee?

Paying a bank 1-3% to perform the same services makes sense, otherwise all CFOs need to be experts in M&A and negotiations.

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Dec 25, 2018

If you're going to talk about useless professions, a mirror may be useful. Could stick just about anybody in a VC position to take some shots in the dark - eventually one is going to work out. It's like fishing - you cast your line enough and eventually something will bite. Then you can tell all your friends about the "big one" you caught 3 years ago in Sarasota. Takes almost no skill, technical expertise, or work ethic. The only exception I will make to this is if you are in operations, managing the companies in which the fund invests. Otherwise, don't bother.

Dec 25, 2018

Totally agree, VC is a placeholder that i put exactly to avoid ad hominem like this. Assessing if what i say is correct or not shouldn't be influenced by what I do.

Most VC people just want to invest in people who look like them some years back. Spray and pray at least more unbiased.

Dec 26, 2018

It does not seem like you want a career in finance at all, which leads me to question why you are on this site in the first place other than for spreading anti free market disinformation?

Dec 26, 2018

disinformation? Where? I am just posting my opinion, as everyone. Its not my fault if you take it as dogma. I am here because I am in the finance industry in a way.

Dec 17, 2018
InvestInYourShelf:

Lol, this is legitimately one of the dumbest comments I've ever seen on this website. You sound like a college kid who struck out trying to break in to banking (not saying you are, just that you sound like one). Now that you're triggered I'll get on with addressing your comment.

First off (as the OP addressed), there was no comparison being made between doctors, lawyers, and investment bankers and how much each profession "deserves" to be be paid. Basic economics dictate how every profession is paid, deal with it. (Not to mention doctors/lawyers are paid VERY well, and have a more steady/reliable career path - there's more to a comparison than just looking at straight up salary numbers).

Secondly, do you genuinely believe Investment Banks serve absolutely no purpose, and if they were to disappear that "Everything would be the same"...? This claim is seriously so ridiculous that I'm questioning whether you are even remotely educated. Trillions of dollars have been raised by companies (you know, the actual purpose of investment banks - to raise capital) through investment banks. Claiming that investment banks serve no purpose is nonsensical.

You are correct that the junior bankers are not the ones doing the matchmaking for a bank (Obviously, not sure why this even needed to be pointed out?). However, junior bankers are the ones doing the grunt work, building the models, and putting together all the materials in order for the senior bankers to do their job. In order to convince college kids to do this job, they must be compensated well - hence the 100K+ salaries.

Luckily, you are only a "useless" junior banker for a short period of time before moving up the ranks and becoming the one doing the matchmaking (which, I assume, isn't a useless profession in your eyes). Just like doctors and lawyers must go through years of additional schooling and residencies/clerkships (Totally useless professions, right?) before they add value at a more senior level, junior bankers must go through years of grinding away on excel before they can begin adding level at a senior level.

Jesus.

I think the quote that often times gets missed--but is maybe the most important part--from Bettany's epic Margin Call monologue, is where he says, "Listen, if you really want to do this with your life, you have to believe that you are necessary, and you are".

The economics answer is the best one to describe banker pay. Large transactions warrant bigger payouts. Because there are more transactions, there are more of those large payouts to go around. To incentivize juniors, they get pay that speaks to that. But it's probably more important to reinforce the illusion, more than anything.

Why else do banks like to recruit from HYP? Yes, they could get any monkey to do the job, especially for the pay they're offering, but they want HYP kids, because they help the bank establish legitimacy.

People forget, society is all made up shit we do to keep us from killing ourselves. God, Santa Claus, the Tooth Fairy, are all institutions that we know we need to choose to believe in.

While the economics argument explains pay sufficient enough, it also relies on the belief that capitalism, pure capitalism like an M&A transaction, is necessary. Obviously, in fractious times like we're in now, not everyone believes that anymore. But if you're a banker or want to be one, you just have to hold onto the faith.

Anyone that doesn't realize this needs an awakening somehow, because maybe they shouldn't be in the industry. It's reckless to not see the flaws of capitalism and also reckless to not believe in it. People in banking should be a very cautious since it's other's people's money, after all, but remain steady.

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Dec 17, 2018

SB for the Bettany Margin Call quote. Best "finance" movie ever made, and I'll die on that hill.

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Dec 18, 2018

The part about people hating banks but running to them in need of credit for shit they can't afford is particularly eye-opening.

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Dec 21, 2018

If that's eye-opening, surely your face hurts from walking into things...

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Dec 26, 2018
CorneliusLux:

The part about people hating banks but running to them in need of credit for shit they can't afford is particularly eye-opening.

You are aware that commercial lending and IB are different business lines, right?

Dec 26, 2018

I was clearly speaking of banks in general.

Dec 27, 2018
CorneliusLux:

I was clearly speaking of banks in general.

I got that. I wasn't confused by the context, I was confused because it's such a dumb and uninformed thing to say that I was curious if you even knew the difference.

It's like saying that people hate apples but love oranges and trying to imply that that is ridiculous. There isn't a contradiction or any hypocrisy because you are referring to two separate things...

Dec 27, 2018

I wasn't referring to two different things. The comment wasn't related to IB whatsoever, something you obviously didn't get. Speaking of dumb and uninformed. I was merely reflecting on this movie bit without any connection to IB (see how I'm purposely repeating myself here for your ease of understanding). No apples and oranges, just good ol' "haha remember this movie scene which is funny because Mr. A hates banks but he's got a 400k mortgage and just used his cc to buy a new UHD TV for his equally clueless vegan hipster son Todd" kind of thing. To be even more precise, my comment was totally unrelated to the topic, just decided to pitch in, nothing se. Only thing that connects my comment to IB is that it's in the IB section of this forum. Really hoping this cleared things up for you.

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Dec 27, 2018

It did. Probably worth copying and pasting that as a disclaimer for all the other non-sequiters you post in the future.

Dec 22, 2018
NeedSomeHelp:

SB for the Bettany Margin Call quote. Best "finance" movie ever made, and I'll die on that hill.

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Dec 22, 2018
NeedSomeHelp:

SB for the Bettany Margin Call quote. Best "finance" movie ever made, and I'll die on that hill.

I'll die right next to you. It's an underrated movie in general, easily the most underrated finance movie. And in my view, it's the best finance movie.

"It's 11 o'clock at night!"
"I am well aware of the fucking time, Sam. I'm telling you, you need to see this."
"Email it to me."
"I don't think that that would be a good idea..."
"I'm on my way."

"Now you's can't leave." -Sonny LoSpecchio

Dec 22, 2018
iBankedUp:
InvestInYourShelf:

Lol, this is legitimately one of the dumbest comments I've ever seen on this website. You sound like a college kid who struck out trying to break in to banking (not saying you are, just that you sound like one). Now that you're triggered I'll get on with addressing your comment.

First off (as the OP addressed), there was no comparison being made between doctors, lawyers, and investment bankers and how much each profession "deserves" to be be paid. Basic economics dictate how every profession is paid, deal with it. (Not to mention doctors/lawyers are paid VERY well, and have a more steady/reliable career path - there's more to a comparison than just looking at straight up salary numbers).

Secondly, do you genuinely believe Investment Banks serve absolutely no purpose, and if they were to disappear that "Everything would be the same"...? This claim is seriously so ridiculous that I'm questioning whether you are even remotely educated. Trillions of dollars have been raised by companies (you know, the actual purpose of investment banks - to raise capital) through investment banks. Claiming that investment banks serve no purpose is nonsensical.

You are correct that the junior bankers are not the ones doing the matchmaking for a bank (Obviously, not sure why this even needed to be pointed out?). However, junior bankers are the ones doing the grunt work, building the models, and putting together all the materials in order for the senior bankers to do their job. In order to convince college kids to do this job, they must be compensated well - hence the 100K+ salaries.

Luckily, you are only a "useless" junior banker for a short period of time before moving up the ranks and becoming the one doing the matchmaking (which, I assume, isn't a useless profession in your eyes). Just like doctors and lawyers must go through years of additional schooling and residencies/clerkships (Totally useless professions, right?) before they add value at a more senior level, junior bankers must go through years of grinding away on excel before they can begin adding level at a senior level.

Jesus.

I think the quote that often times gets missed--but is maybe the most important part--from Bettany's epic Margin Call monologue, is where he says, "Listen, if you really want to do this with your life, you have to believe that you are necessary, and you are".

The economics answer is the best one to describe banker pay. Large transactions warrant bigger payouts. Because there are more transactions, there are more of those large payouts to go around. To incentivize juniors, they get pay that speaks to that. But it's probably more important to reinforce the illusion, more than anything.

Why else do banks like to recruit from HYP? Yes, they could get any monkey to do the job, especially for the pay they're offering, but they want HYP kids, because they help the bank establish legitimacy.

People forget, society is all made up shit we do to keep us from killing ourselves. God, Santa Claus, the Tooth Fairy, are all institutions that we know we need to choose to believe in.

While the economics argument explains pay sufficient enough, it also relies on the belief that capitalism, pure capitalism like an M&A transaction, is necessary. Obviously, in fractious times like we're in now, not everyone believes that anymore. But if you're a banker or want to be one, you just have to hold onto the faith.

Anyone that doesn't realize this needs an awakening somehow, because maybe they shouldn't be in the industry. It's reckless to not see the flaws of capitalism and also reckless to not believe in it. People in banking should be a very cautious since it's other's people's money, after all, but remain steady.

What's it like to be absolutely wrong in all of your beliefs? "The flaws of capitalism." The "flaws" compared to what? The idealized systems that exist only in your own imagination? Tell me, which systems don't have the "flaws of capitalism?" The banker less societies of Cuba, North Korea and Venezuela?

And please, save me from the Bernie bro one-liner about the utopian socialist states of Europe. The continent that's in perpetual stagnation; the continent that has capitalism and banks; the nordic countries that rank economically freer than the US.

Also funny how you rank the tooth fairy with God in terms of supportable positions. As if the notions are equally defendable epistemologically.

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Dec 22, 2018

Uhhh... ?? So apparently somewhere in my post, to you I said something in support of socialism. Can you tell me where?

I feel like the average, but not bad looking 40 yo man, with stacks of cash, and you're the gold digging hoe. I'm just one giant green light to you I guess.

Dec 17, 2018

Thank You Deauth, Very Cool!

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Dec 17, 2018

Wow there is a lot of butthurt monkeys of your comment that not much would happen without IB.

It looks like more and more companeis are tending to cut out the middle man, whether its Spotify/Uber/Airbnb's decision to do a direct listing, or it's a CFO's decision to just manage a sellside process themselves.

There is not really much to banking. The really value comes from knowing the market of buyers. Any CFO worth their salt already has a good idea of potential acquirers, can pitch their company fine, and knows all the metrics that buyside professionals will look for.

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Dec 21, 2018
donnyboy101:

Wow there is a lot of butthurt monkeys of your comment that not much would happen without IB.

It looks like more and more companeis are tending to cut out the middle man, whether its Spotify/Uber/Airbnb's decision to do a direct listing, or it's a CFO's decision to just manage a sellside process themselves.

There is not really much to banking. The really value comes from knowing the market of buyers. Any CFO worth their salt already has a good idea of potential acquirers, can pitch their company fine, and knows all the metrics that buyside professionals will look for.

It's quite obvious you have never worked with a CFO before.

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Dec 17, 2018

Yep, all doctors save lives (especially those Malibu plastic surgeons). And all lawyers ensure justice (especially those shark PI ambulance chasers). And all investment bankers are morally bankrupt parasites on society.

Society is not shades of gray, but perfectly black and white. You TOTALLY nailed it. Wish more people were as brave as you.

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Dec 21, 2018

So in your mind, you don't believe investment banks create/add any value. Given that stance, how would you explain why they get paid what they do? I'm sincerely interested to hear your rationale given your stance.

Dec 26, 2018

It's all a fugazi, you know what I'm saying? No but seriously, in a free market existence justifies itself. This lad wants a self righteous all powerful entity to decide wages and prices. Sounds a lot like communism to me. But what the hell do I know, I have not even finished collage yet.

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Dec 25, 2018

Here in the UK partners at corporate law firms are often paid more than banking MDs.

At analyst level, pay any lower and the hourly rate will be below minimum wage for many.

Not sure I agree with many of these claims.

Dec 17, 2018

This is so wrong. Your value to society is not much of a determinant of your pay. Soldiers get paid little, actors get paid a ton. Supply and demand of labor is the determinant of pay in general.

There are very few people qualified to be doctors(high barriers to entry-years of schooling) but there is a ton of demand for them hence the high pay. Barriers to entry are low for IB, so supply of QUALIFIED AND WORTHY candidates is massively overstated (no- not anyone can be a good banker, unlike what most ppl think. Massive diff b/n a good and bad ib analyst. Being a good banker is more than just typing shit in excel-its communication, reliability, people skills, efficiency, etc), while demand is very high.

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Dec 17, 2018

What is "value to society"? And I guess that's not the equivalent of what I said. I said if what you do matter and the supply is rare relatively to demand, you are gonna get paid well. There are many ways to determine "value" or "matter", but here we're talking about pay in monetary term.

Not all actors get high paid. Superstar actors get high paid. Not everyone become superstar actors. People come to the cinema to watch their movies - lots of people, and hence money for the producer, and hence money for the superstar actor. They matter in a way that people are willing to spend to see them on screen playing a role. Sure if actors go away there will probably not as much negative effects as if doctors or soldiers go away. But in a society where people are relatively well-off and don't have to think about whether they will survive the next day due to war or illness, then services like entertainment is among the next thing they think about and spend on.

Dec 17, 2018

Jesus man, you ever hear of a coma?

Dec 17, 2018

YEAH - ITS THAT THING I'M GOING TO PUT YOU IN IF I EVER SEE YOU TYPOing WHILE INSULTING OTHER'S TYPOS, AGAIN!

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Dec 17, 2018

+1... Fuck me

Dec 21, 2018

This is pretty fucked up if you sincerely believe your earnings directly correlate with your contribution to society.

IB get paid so much because of cultural barriers to entry and information asymmetry.

Read Michal Lewis, Liars Poker, cover to cover

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Dec 8, 2018

Because not enough people with above-average skill and talent would (want to) take the job if they didn't get outsize pay.

If employers could pay IB'ers less while maintaining acceptable quality, they would.

Dec 9, 2018

Because they work long hours.

On an hourly basis IBankers don't really earn that much.

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Dec 17, 2018

Quite simply, this might be the best answer. At least mathematically.

If you consider the hours and the cost of living in coastal cities where IB is located, then the pay will just work itself out.

Then you got to figure in that the type of people recruited to do the work are going to be of the higher ability-types. (Meaning, the ability to function after 10-12 hours of a typical workday). Generally speaking, these people will have other options for work so you have to make sure they're well compensated enough as to not take another opportunity.

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Dec 9, 2018

I think Ibanking is similar to Realty but with more barriers to entry. Any sober human can get a job selling real estate and about 50% will not make a living while 1% will make a killing in it. The barriers to being a business broker are not much higher and the earnings spread is probably similar; most business brokers struggl to make a living while the top ones kill it.

If Realty was better organized there would be a small cartel of global firms representing the biggest transactions around the world (which may be the case). If Realty was run by ibankers it would be super exclusive at the top, they would only recruit the best students from the best schools and try to keep the the money in their small little clique. They would build barriers to entry in any way they can; insane work hours, NASA level hiring standards, over-complication of the simple, creating mystery and wonder around basic algebra, using big words and acronyms, wear nice suits, have fancy offices - anything to sound different from business brokerage, .

I respect any profession that lives on a feast or famine cycle and don't begrudge their big paydays in between. What I find more irritating is the big law firms that always have work, no feast/famine cycle, no risk but they are just raking fees every single day. I'm in a broken deal now, Ibanker got nothing but the lawyers have collected over $1M and now charging to clean up their own mess.

In the end, do any of these folks create actual value? They certainly add value but as a percentage it's less than a waitress. It's all a service, they are not creating jobs or technology and probably very little net societal gain. In a way that's what's great about America, we adore the self-made billionaire and still begrudge the professional making a tiny fraction of that.

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Dec 17, 2018

This is so spot on. Incredibly, the lawyers manage to rake in these fees without even organizing the cartel. The one thing they have going is the individual monopoly with each client. Clients are scared shitless to switch law firms because all the paperwork, skeletons etc are already with their legacy law firm.

Dec 10, 2018

While I don't work in IB, so my opinion may not weigh as much as some of the others on here, but I am guessing it's purely based on the hours? Think about it...the salary rate may be the same as other jobs, but more hours x rate = more pay ultimately.

Also at the big banks, bonuses are pretty nice due to important deals that help companies run. While doctors absolutely deserve to get paid more, the investment bankers are the ones that help fund the med center or the med company that hires important talent in their doctors. Without brokers/bankers, that med center may not get funded, and the doctor doesn't get hired.

Now OBVIOUSLY, the doctor is more vital here and I absolutely do not want to minimize the work they do because he/she actually saves lives, but the banker is also important in enabling the company to have a doctor in the first place.

bit of a stretch, but I'm 100% serious.

Dec 10, 2018

Investment Banking analysts make about $30/hr. They don't earn much more than a factory worker on an hourly basis but they make it up in volume.

Stop being mean to them.

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Dec 10, 2018

Because who gives a shit?

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Dec 17, 2018

Try running a material merger or company/asset sale process without an advisor or a suboptimal advisor - you will quickly see the answer to your question

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Dec 17, 2018

OP and @Deauth seem to have it all figured out.

If it's so easy, why not go do it yourself, gents?

That is of course leaving aside the predictable retort from @Deauth that such an indignity would be beneath him/her.

Dec 25, 2018

Yeah right, let me waste time from my life to prove a point to an anonymous user on a forum. Easy is relative, but if you did a STEM major and you think IB is difficult I seriously doubt your education.

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Dec 26, 2018

Your conclusion on IB proves you have, if any, just basic knowledge on what IB is like.

STEM is mostly science, while IB is both science and art. In STEM 1+1=2 but in corp fin, 1+1 sometimes =5 or sometimes =0. So to compare the two is off to begin with. And the more difficult part for IB is actually not the science one. Sure STEM people can, for the most part own the science part of corp fin. Anyone can arrive at some forecasts given data / assumptions. But not anyone can effectively predict and find solutions for market reaction - both commercial and financial, conflicts of interests, synergies, work out efficient corporate structure that both makes senses internally and externally (tax-wise, market perception...), defending corp raid....

These aren't like puzzle where you are given pieces to put together to form a whole picture. A lot of time there isn't right or wrong answer but an open and ongoing situation in which you constantly improvise and react. A pure STEM with some trainings can give you a valuation on how much a company is worth, but if you ask him whether a company should spin-off, carve-out or do tracking-stock for it's business units, or do a combination of them, how to sell it to shareholders and get major personnels on board and how will the market react to such an event, he'll get fainted.

Besides, IB isn't just about technical but also soft skills. If the only thing you have is STEM skills then you probably won't make it past Analyst level in banking. Bankers don't just analyze the rationale behind a deal, but also broker, negotiate and drive the deal forward. The bankers is the one who connects the dots together between various parties in a deal (buyer, seller, various advisors, creditors...), helps solve problems along the way and push the deal forward. And senior bankers are negotiation experts. CEOs probbably can negotiate a supply contract in his business, but when it comes to negotiate value of the entire company, bankers tend to know better, and only a marginal increase in a multibillion dollar deal would mean a crapload more while also go well beyond covering the banker fee. A prime example of this is when Mr. Geoff Boisi told the CEO of Getty Oil who was tempted to sell at 110$ a share that it was not a good deal. The deal later closed at 125$ a share, resulting in around 1.4$ billion difference.

I doubt whether the typical introverted shy STEM kid who is nervous to talk to people actually find any of this easy

Dec 17, 2018

It is quite simple If you are tied to generating revenue in a commission manner, you tend to be able to make a large income. I've had portfolio companies where the head of sales makes >3x the CEO annually (but CEO will make a lot more with equity on an exit).

Reality is IB/PE/Etc. are making a % commission on large transactions, and there is a large pool to split. It really gets outrageous when you make partner and get part of the net profit of a professional services/partnership business. That is how all the PE/IB/Lawyer/Doctor really makes their wealth.

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Dec 25, 2018

This is actually a great response along the lines of what I was thinking as well.

Dec 17, 2018

supply and demand

Dec 17, 2018

A better question is, why do bankers have such little self worth that they are willing to literally eat shit for only 6 figures.

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Dec 17, 2018

The work is easy, but the stakes are extremely high in certain situations.

In other words, it is worth paying a premium on the salary to get the best candidates to decrease the likely hood of anything going wrong in the deal process like a mistake in a model or an analyst leaving the office early. Also, the premium for the bank is immaterial as they make a bazillion dollars in fees on deals, so might as well pay that immaterial extra amount to get the best analysts.

If they paid say, 60K instead of 120K for first year analysts, The pool of talented and dedicated candidates would be significantly smaller. Also, no one would be desperate to pull all-nighters for 60k.

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Dec 17, 2018

They take your life away and give you a hefty sum in return. Fair enough

Cash and cash equivalents: $7,286
Financial instruments and other inventory positions owned: $313,129

Dec 17, 2018

Its starts with why the bank gets paid so much. It's mainly for advice. If you're the company doing a billion dollar acquisition, and you only do one of these per decade, it feels like a "make or break" or "bet the company" situation. You don't mind paying 1% to have an experienced advisor holding your hand through all the details.

So that's $10 million for a deal, and let's say a good MD does 3 a year for $30 million in revenue. At $30 million per MD, it makes sense to spend a few million on a good team, including a few hundred thousand on a good set of analysts to get the work done more quickly and smoothly. Yes you could save $50k per analyst by hiring mediocre people, but that's a penny wise and a pound foolish because you average only 2.5 deals per year instead of 3.0, that's $5 million less per year.

Dec 19, 2018

They do the analysis on the deals that produce $100Ms in fees.They are tied directly to the revenue generating portion of the company, hence they get to share in it.

The guys who work our enterprise deals have pricing analysts who help with the analysis. they dont make as much as IB Analysts but they essentially serve the same purpose.

Dec 21, 2018
jnhadekjs:

And don't tell that they work too long. I know a manager at walmart who work as much as IBankers and makes just 80k. She has also a degree and been working 12 years in the same company.

Even high schoolers with passion can do IB if you teach them some accounting and corporate finance and teach them excel. That's why there are so many analysts from irrelevant backgrounds and majors

This is a very fair question, and resentment at banker pay has been the source of a lot of societal discontent.

The simple answer to your question is if there were no bankers, the economy would grind to a halt. There would be no venture capital, no industrial companies etc. We would all have to go back to an agrarian economy if commercial and investment banking ceased.

I disagree entirely that a high schooler can do banking. Success in banking is driven by what you know and have learned in school, not by how just hard you work.

This is why STEM degrees, the CFA, and graduate degrees carry a lot of weight on the Street.

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Dec 21, 2018
hkp:

The simple answer to your question is if there were no bankers, the economy would grind to a halt. There would be no venture capital, no industrial companies etc. We would all have to go back to an agrarian economy if commercial and investment banking ceased.

No, other people with capital would show up. But the economy would look like 2008 if we hadn't passed TARP.

We need commercial lending, not necessarily mergers and IPOs. Also, the tech sector would be able to figure out IPOs if the banks disappeared (CC Google).

This is why STEM degrees, the CFA, and graduate degrees carry a lot of weight on the Street.

??? A liberal arts degree from Yale carries more weight than Engineering from Cornell, especially in banking. In S&T, for something quantitative, the engineer is at least on a level playing field, but in banking it's all about the prestige ticket punching.

I still recommend studying Engineering, though.

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Dec 25, 2018
hkp:
jnhadekjs:

And don't tell that they work too long. I know a manager at walmart who work as much as IBankers and makes just 80k. She has also a degree and been working 12 years in the same company.

Even high schoolers with passion can do IB if you teach them some accounting and corporate finance and teach them excel. That's why there are so many analysts from irrelevant backgrounds and majors

This is a very fair question, and resentment at banker pay has been the source of a lot of societal discontent.

The simple answer to your question is if there were no bankers, the economy would grind to a halt. There would be no venture capital, no industrial companies etc. We would all have to go back to an agrarian economy if commercial and investment banking ceased.

I disagree entirely that a high schooler can do banking. Success in banking is driven by what you know and have learned in school, not by how just hard you work.

This is why STEM degrees, the CFA, and graduate degrees carry a lot of weight on the Street.

This kind of self absorption is what is wrong with you people. Banks created 2008 and world economy suffered from it. If you think IB is what made the industrial economy, there are 2 options, either the only thing you read is this forum, or you are just trolling

Dec 25, 2018

While IB has not made the industrial economy, it has without a doubt contributed to the rise of it. To think so otherwise is blatantly foolish.

Dec 25, 2018

It did, but we cannot asses how much or what would happen if it wasn't there. So bringing it up in a conversation like this is kind of useless, don't you think? It was of the 5 million things that lead to that, but we can't even measure if the contribution was positive!

Dec 21, 2018

I think the industry is overpaid, but reasons i can think of, in terms of economic theory (scarcity drives price)

  • finding someone that is hard working, has attention to detail, and the right attitude is a lot harder than you think. You can teach financial modelling and powerpoint to almost anyone, but thats not the point. Ive seen plenty first and second year analsyst fired cause they just werent good enough at this 'easy job'
  • bankers end up being in a position where they talk to everyone in an industry and can share that info, and firms are willing to pay or that
  • companies are offloading liability to the banks and that costs. Fairness opinions are complete BS but ultimately mean 'look the bank said its the right price'
  • you genuinely give up a personal life. Youre never gonna convince me a walmart manager works just as long hours. I know a guy that barely saw the first 2 years of his first kid when the kid was growing up, as he was travelling loads for a deal that never even happened. I wont give my opinion as to it being the right life choice, but thats why that person gets paid
  • the most cynical point i will make is that bankers are very good con men. At the end of the day youre a sales guy at the higher levels and you make it look like youre services are worth a lot cause you sell yourself well. Up to you to believe if that service is worth it, but companies pay up for it, so i guess there is something to it. Basically youre happier when JPM is advising on spending 10bn or doing and IPO you rather that your dad's accountant

All of the above is - scarcity drives price. People doing the above are scarce. Your points about other more moral jobs being paid less are valid, but unfortunately capitalism works the way it does, and more scarce skillset is rewarded more even if arguably less additive to society. But then again, should athletes and movie starts be paid the amounts they are by the same logic? Im not here to say if anything is right or wrong just why it is as it is

Dec 21, 2018

they work too long.

Dec 22, 2018

Heres how i think about it.

1) Scale of impact: The amount of value you can unlock or destroy in a deal is massive, so it makes sense to pay top dollar for the very best employees. This explains HF >PE > IB > Consulting > Operations in salaries. You can be among the best marketing managers in the world, but it can be pretty tough to have anywhere near the impact as a Banker. A HF star can unlock insane amount of value with a single trade.

2) Transparency: Being able to clearly assess how much you are worth is another important driver. This explains how a 26 yr old Trader can make so much. That trader knows exactly how much PNL he brought in. In IB this can at least be done at the deal team level.

3) Portability: How easy is it to bring your skills elsewhere. If you depend on the company's platform, you wont be worth very much.

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Dec 22, 2018

Because the bar for entry is high and therefore the qualified candidates are few.

Dec 22, 2018

It's simple really, you don't have to over-analyse the trade-off of long brutal hours and what not. It comes down to two things,

1) Investment banks make serious money on a deal (if it closes) purely from the fees.
2) Seriously, what are the costs/overheads of running an investment banking business? Travel expenses, CIQ subscription, keeping the office supplies running???

Combination of #1 and #2 ensures the entire team of bankers get paid a lot. As to the reason behind #1, that's just the way capitalism works.

Dec 25, 2018

You are right it is overrated and glorified. Bankers should make only as much as commercial bankers.

Dec 25, 2018

There are many ways to answer this question, evident from all the comments on this thread. How can we tell if a well paid job "deserves" its pay or not, because I think everyone agrees that some jobs should demand a greater compensation? One way to try and answer this is by asking the following simple question: Does the person performing the job have "skin in the game" i.e. is he/she harmed in any way if he/she makes a bad decision for any reason: malice, incompetence, stupidity, etc. If yes, then high pay is deserved. Under this simple rule, investment bankers do not deserve their high pay because they merely consult clients on deals and don't return their fees (or pay damages) if their models' predictions don't happen. Hedge fund managers who trade with their own money are, however, deserving of their pay: if they underperform, then they are harmed because they lose their money. My $0.02, also not my idea but stolen from Nassim Taleb.
P.S: if someone has skin in the game, but is not compensated highly, then life is unfair and you shouldn't think that just because you are doing something useful for society the universe owes you anything.
Edit: The above applies to M&A in IBD only as I have limited view on other IBD divisions.

People in 1903 thought horses will always be needed.
Dec 25, 2018
slumbering_programmer:

Does the person performing the job have "skin in the game" i.e. is he/she harmed in any way if he/she makes a bad decision for any reason: malice, incompetence, stupidity, etc. If yes, then high pay is deserved. Under this simple rule, investment bankers do not deserve their high pay because they merely consult clients on deals and don't return their fees (or pay damages) if their models' predictions don't happen.

Have you ever worked on a DCM/LDCM transaction before? The bank holds the debt on their own balance sheet for 6-9 months as they syndicate it out. They also lose money if they go through their caps on OID flex and coupon flex.

Same thing goes with ECM and block trades. Bank is holding those shares on their balance sheet during the block trade and lose money a decent percentage of the time.

Dec 25, 2018

I am not working in IBD, and manybe I should have been more precise: what I wrote is specifically about M&A, not DCM. I knew someone who worked in DCM and they told me that their bank (top tier US), in-fact, doesn't hold any debt on their balance sheet at all but finds third parties to do that. Maybe my memory is hazy, or they didn't explain it well to me. I'm not familiar with the other terminology you are using, so please don't "flex" with it: I would love to read your explanation about what all of this is:

They also lose money if they go through their caps on OID flex and coupon flex.

Or if it's available online I would just read up myself about it.

As for ECM/block trades: makes sense, again, I should have been precise: my example only applies to M&A.

People in 1903 thought horses will always be needed.
Dec 25, 2018
slumbering_programmer:

I knew someone who worked in DCM and they told me that their bank (top tier US), in-fact, doesn't hold any debt on their balance sheet at all but finds third parties to do that. Maybe my memory is hazy, or they didn't explain it well to me.

Banks do not hold debt on their balance sheet to maturity, but they do hold it on their balance sheet during syndication, i.e. in between the time of funding the debt to the issuing company and the time that they can place the debt with the aforementioned 3rd parties.

Debt instruments are issued at a discount to face value, also known as OID or original issue discount. Term sheets specify the OID, and an amount of "flex" or incremental OID that can be used to convince debt investors to buy the paper off the bank's balance sheet should there be difficulties in syndicating it out at indicative terms. The same can be done with the interest rate on the paper.

If a bank agrees to a term sheet with 98 OID (so 98 cents on the dollar) on indicatives which can flex to 97, but the market still isn't interested and they need to issue the paper at 95 in order to get enough interested 3rd party debt investors, the bank needs to bridge the gap from 97 to 95 out of their own pocket. On a $1bn transaction, thats a loss of $20mm. Hence, banks take significant risk in these transactions, especially at times like these when leveraged loan and high yield bond markets are doing awful.

Dec 25, 2018

Thanks, very informative & makes sense!

People in 1903 thought horses will always be needed.
Dec 25, 2018

I have nothing to say about whether investment bankers are overpaid or not as that is a judgment call on the nature of capitalism and that's not a debate I have time for at this moment.

I will say this though.

The fees of top investment are negotiated with the most sophisticated clients in the world - top tier financial sponsors, large corporates, UNHWIs who are often highly successful entrepreneurs - and its a zero sum game. Every dollar the client is out of their own hide or the hide of their shareholders / LPs. Moreover, it's a competitive environment and there are often multiple competent firms for any piece of business. Clients don't "overpay" investment banks out of the goodness of their hearts. They pay the competitively negotiated fees because they think our value in an M&A deal or an IPO, as well as the broader relationship is worth multiples of the fees (and it most often is). Yes, I'm aware clients pay for balance sheet etc but the success of the non-balance sheet firms highlights just how valuable the advice is and very few, if any, clients hire their lead bank on a critical IPO or M&A because of balance sheet.

That's the revenue side. On the cost side, no bank ever pays their bankers a penny more than they absolutely have to. Banks spend a ridiculous amount of management time figuring out the MINIMUM they have to pay their bankers to keep them happy because they know it's a competitive market for talent when talent is unhappy.

Banker compensation is directly related to the fees the banks earn and the cost needed to retain staff. It's not a question of fair or unfair, it's that the economics of the business in a highly competitive market justify the compensation

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Dec 25, 2018

I'm more baffled by your reference to a manager at Walmart. An employee at Walmart does not even need a high school degree and one can move up internally over time without a high school diploma. The comparison to IB is just blatantly embarrassing. Yes a manager at Walmart may work the same hours as an IB analyst, however what contribution does that Walmart manager have to society other than consumer welfare for that ONE Walmart, while an IB analyst is working on multi-billion dollar transactions that affect the lives of thousands. Both the amount and caliber of education required to be an analyst at an IB far surpasses that of a Walmart manager, so please do tell me why a Walmart manager deserves to make as much as someone in IB..

Dec 25, 2018

The average salary for a Walmart Store Manager on Glassdoor is $137K or about the same as an IB analyst.

Also, a Walmart store manager is responsible for an operation that produces millions of dollars a year and affects thousands of people's lives in many communities. IB analysts are fungible, fancy office assistants & graphic designers who also do some financial analysis

Dec 25, 2018

Is the average store manager averaging 80 hour weeks with the occasional 100 hour week? Or are they delegating much of their work to their department managers and employees beneath them? Totally agree that Store Managers are respectable positions and warrant higher salaries, but the average store manager is not nearly working as hard as the average analyst. You also seem to discount the amount of work an analyst does, you seem to be describing work one would delegate to a summer analyst, give it 6+ months to a year on the desk and get back to me if you think IB analysts should be making less than Walmart managers.

Dec 25, 2018

i'm truthfully confused about the point you're making. you mentioned walmart managers; i responded about walmart managers, and then you started talking about "average store workers". why are they relevant here?

your argument seemed to be that walmart store managers shouldn't / don't make the same as an IB analyst. my point was that they do (glassdoor).

you claimed that walmart store managers have a negligible, limited impact ("what contribution does that Walmart manager have to society other than consumer welfare for that ONE Walmart"), while an IB analyst has a major one. i'm countering that being a manager of a store turning tens of millions of dollars in inventory is not a small deal. walmart had $250B in store revenue in 2017 excluding eCom and Sams Club. With 4,177 stores, that's around $59M in sales a year.

yeah sure i haven't been a full-time analyst -- i'll give you that. but this summer my full-time analysts' work seemed to in large part be creating & editing marketing materials, as well as managing buyer touchpoints (outreach, distributing CIMs, DD, tracking IOIs, etc.)

and lastly, it's not my place to judge how much people should be making especially in comparison to one another. but i think being directly responsible for hundreds of staff and tens of millions in sales is worth $140K. what happens if you're a bad analyst? you get a low bonus and shitty staffings. what happens if you're a bad store manager? you could lose millions in sales and cost lots of people their jobs.

Dec 25, 2018

Most of the revenue that goes to Walmart stores is simply.. "flow" or "franchise" revenue. The manager's job really is to just make sure things do what they're supposed to do so as to not adversely affect that flow. People go to Walmart because of Walmart.

It's not like running a sales org or a whole corporation/business where your efforts actually go towards maximising revenue; thus, the idea that Walmart store managers are somehow solely responsible for the "multi-million dollar business" they run is a bit of a misnomer.

Dec 25, 2018

Fair point, they're not solely responsible for producing those sales but they have a major impact on them, and if the store's sales performance isn't good, who has to answer? if a store manager makes a change in the store layout, or stocking or staffing and customers decide to go to another WMT location or a TGT down the street and the store's sales drop, who gets fired?

Dec 25, 2018

Not sure what you're talking about in reference to store workers, but my point was that the average Walmart Store Manager should not earn as much as the average IB analyst. Never did I mention that they do not earn as much as an IB analyst, because I know that in fact they do. As someone who had a close relative work at Walmart, I can tell you that the work a store manager does, while essential is not what is driving tens of millions of revenue to the store, that is simply incorrect to think a Store Manager alone is bringing in that revenue. To add to the comment from princepieman I think you are confusing the responsibilities of the store manager. The Walmart entity itself instructs franchises on how to layout their stores, while the Store Manager may have some input they take orders from Corporate. You seem to believe that Store Managers are responsible for both operations and end to end of the sale within the store they manage which is incorrect. I mean no disrespect when I say this, but it does not seem like you understand how the corporate-franchise relationship works.

You also seemed to completely disregard my point regarding the hours of a Walmart Store Manager and that of an IB Analyst. To reinforce my argument, the average Walmart Store Manager does not work the same hours as the average IB Analyst. If you have any data to refute that please share.

Dec 25, 2018

"Not sure what you're talking about in reference to store workers"

i saw you edited your post. slick move, but you gotta be slicker.

"but my point was that the average Walmart Store Manager should not earn as much as the average IB analyst. "

let's agree to disagree. but it seems like Walmart thinks their store managers are work $140K and banks think they're analysts are work $140K

"As someone who had a close relative work at Walmart, I can tell you that the work a store manager does, while essential is not what is driving tens of millions of revenue to the store, that is simply incorrect to think a Store Manager alone is bringing in that revenue. To add to the comment from princepieman I think you are confusing the responsibilities of the store manager. The Walmart entity itself instructs franchises on how to layout their stores, while the Store Manager may have some input they take orders from Corporate. You seem to believe that Store Managers are responsible for both operations and end to end of the sale within the store they manage which is incorrect."

I responded to princepieman's comment on this matter. but even if they're not making the decisions and directly creating this revenue, i think it's interesting to say who ever the manages hundreds of associates (necessary to run that store that produces tens of million in revenue) shouldn't make $140K

"I mean no disrespect when i say this, but it does not seem like you understand how the corporate-franchise relationship works."

I mean no disrespect when I say this, but you're the same age as me, not some wise sage with years of work experience.

overall, i don't think we need to continue this argument. i hope you have a wonderful holiday. it looks like you'll be in chicago, as well. perhaps we'll run into each other one day

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