Why don't banks just hire more people?

chris_m94's picture
Rank: Baboon | banana points 170

This is a question I always ask myself.
I worked at a (non finacial) firm before I went to University and when people had too much workload or did too much overhours the firm just started to hire new people...

Now I always hear people talking about working 100 hours a week - I mean those people have to be compensated for the workload, why just don't hire more smart people with the benefit of having more motivated and "not near burn out"-staff?!

The supply for the BB is there, thousands of people are applying and beyong the target schools there are many smart people, so why don't hire more people?

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Comments (32)

Oct 22, 2018

I think if you do a per hour breakdown of what analysts make, it isn't as much as the salary would make it seem. Since people tough it out, Banks save a lot of money at the cost of quality of life.

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Oct 22, 2018

to provide a hyperbolic but relevant point, if I said you need to change a lightbulb and you could have as many people as you wanted to do it, how many people would you have do it? just bc you can throw 100 people at a task wouldn't make it go any faster. Doing even high level excel work and transferring that to a PPT presentation doesn't necessarily lend itself to a 1 person per slide type deal (keep in mind you're also paying them ~$80M plus bonus a year for no real extra utility).

I don't think your question is dumb or anything like that, but if you've ever been in an actual situation where too many people are jumping in and out of a deck, you'll understand why excess bodies don't translate to (and often can be a hindrance to) the timing of work output. There probably is an optimal number of people to staff on a deal but there are so many variables and intricacies that are job/deal specific, ill let a quant try and figure that out.

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Oct 22, 2018

At business school our class was divided into study groups of 5 - 6 people each who would work on group projects together. I lost count of the number of times it was completely suboptimal to have more than 2 - 3 people work on a project at the same time. After a certain point the extra capacity just became a deadweight.

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Oct 22, 2018

I have some pretty solid first hand experience from my early college days being the deadweight group project member, or as I liked to refer to myself at the time: "presentation specialist."

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Oct 22, 2018

Now that you mention it, the deadweight may have just been freeriders

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Oct 24, 2018

Group projects are great training for the real world

Oct 24, 2018
dr_mantistoboggan_MD:

I have some pretty solid first hand experience from my early college days being the deadweight group project member, or as I liked to refer to myself at the time: "presentation specialist."

I completely agree with this. Why do the dirty work when you can get all the credit in the end? I keep trying to convince my employers that this mindset is what makes me the perfect MD at a young age.

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Oct 24, 2018

Hey, I was the "Presentation Specialist" too and look how much that helped me in my VC/PE career :P

Started from the bottom now we here.

Oct 23, 2018

I understand the analysts per deal argument, but by having more analysts, doesn't that allow each analyst to work on fewer deals? So they don't get as crushed?

Nov 15, 2018

I think the flaw with this is that the additional analysts wouldn't be staffed on the same deals, but the deals per analyst would be lower (like maybe associate-levels of 3-5 rather than 6-8).

I understand the overhead moves up, maybe the bonus pool stays the same (and gets lower per person), but the amount you save on recruiting costs and lost productivity while a new person ramps up would probably more than offset an additional ~$85k base per person per year.

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Oct 22, 2018

I think there are many ways you can look at this question. But mainly, IB analysts are not really compensated for working 100 hours per week. They are payed a fixed salary and a year-end bonus that is not tied to hours worked. So, by hiring more people, the bank would have to reduce the average salary paid to analysts in orded to maintain total overhead at the same level. As an IB analyst, for instance, it means that you would get paid less than before. The bank would then lose top talent to PE firms, possibly consulting firms, and other lucrative finance jobs.

As well, I believe that the heavy workload acts as a filter for banks. Because analysts work endless hours, those who are unable to cope with the workload eventually quit. Over a few years, the bank is left with the most individuals with the most endurance, which it can then promote to higher ranks. I don't think this is the most effective filtering process for talent, but it certainly is used by banks to a certain extent.

Oct 22, 2018

I never worked in a IBD so far (but wan't to break in) so I do not know the actual tasks exactly and how they are divided in the team.

Just something that striked me because we are not talking about hiring a ton of new people because some Analysts work 5 hours more or less each week, one person working 100 hours would normally be a argument to might have a second person for that job.

As I said, maybe all the tasks are so unique and can not be splitted between person, I just don't have the insights (yet..)

Oct 22, 2018

A lot of the hours involved in any corporate environment, whether material or immaterial to revenue generation, are simply dead time created by bottle necks in a process. I don't work in banking myself, but I'm sure many analysts and interns here will be able to recall a time they've had to wait several hours just for an email that says "ready to print."

Oct 23, 2018

Tl;dr - unpredictable work demands and division of labor failures.

When you are on a project there needs to be a high level of responsibility that each member on the team has...if the client asks "why is the XX growth rate this % in the DCF" you can't respond "oh let me confirm with the 10 analysts that worked on this project I'll get back to you on that". I think sometimes an extra analyst or two would help a lot to alleviate the burned out analysts that are getting crushed, but you also cannot hire so many people that the quality of the analyst experience (# of deals) is diluted to where they can't be considered A to A material (Analyst to Associate direct promotion).

A final point - a lot of groups absolutely destroy top bucket analysts and therefore hours for some middle bucket and all the bottom bucket analysts are really not that horrible since they get less staffings. No perfect answer, but hope this helps!

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Oct 23, 2018
Excelling:

Tl;dr - unpredictable work demands and division of labor failures.

When you are on a project there needs to be a high level of responsibility that each member on the team has...if the client asks "why is the XX growth rate this % in the DCF" you can't respond "oh let me confirm with the 10 analysts that worked on this project I'll get back to you on that". I think sometimes an extra analyst or two would help a lot to alleviate the burned out analysts that are getting crushed, but you also cannot hire so many people that the quality of the analyst experience (# of deals) is diluted to where they can't be considered A to A material (Analyst to Associate direct promotion).

A final point - a lot of groups absolutely destroy top bucket analysts and therefore hours for some middle bucket and all the bottom bucket analysts are really not that horrible since they get less staffings. No perfect answer, but hope this helps!

I think the dilution of experience is a big point here, especially at the analyst level. At my EB, one of the reason we attract top candidates is because we can provide them a clear path to having a lot of top notch deal (e.g. M&A) experience and strong exits. If we expand the pool too much the deal experience we provide will go down and there will be more analysts recruiting for a finite/largely unchanging number of good PE opportunities.

At the BBs the teams are a lot less lean and I constantly see lateral candidates who have been in groups for 2-3 years yet have very little M&A experience (which is what most PE firms want and what most EBs need). Having extra staffing also creates a bit of a morale hazard since it is easier for seniors to create unnecessary/low-value add work since the resources are technically there (and hence hours remain unchanged)

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Oct 23, 2018

agree - very good points + context

Oct 23, 2018

From bank's perspective, especially at BB, they ARE hiring more people. More regional and product groups, all the presentation and research back office functions, bigger middle office, and finally 'junior analysts'. Whatever that can be streamlined in IB front office jobs are being done. Sadly, your MD's 5 page BS comments are beyond the scope of improvement.

Oct 23, 2018

Another thing people neglect when looking at it from an employer's perspective is worker's comp/insurance, benefits, etc. That shit gets expensive when you start adding headcount. Keeping the headcount low and just paying less people more money to work more hours ends up saving you more in the overhead charges.

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Oct 23, 2018

A few items that i'd be thinking about:

  1. More hires = more risk of having bad ones, ineffective ones, personality issues, etc. Simply speaking you aren't hiring all A+ performers and generally adding 5 mediocre analysts to a deal, to avoid splitting an A+ or crushing one, is doubtful to end well in the long run.
  2. More people = more management. Putting aside cost for a moment, just the logistics of having more people, hiring more people, managing the workloads that come in, etc. As others have noted in spades, simply having 10 people vs. 5 on a team creates a whole other set of problems
  3. Volume of work expands to the time you allocate to it - someone said that, and it's true today with respect to people/capacity. Adding tons of headcount will, probably, end up with all kinds of needless, bullshit stupid work - deals that are on the verge of not making any rational sense get pushed through because you have 'capacity' which, then stretches capacity - you get the point
  4. I think we all severely overestimate the importance and volume of actual work that goes on and is necessary. Honestly evaluate how many hours you spend doing the work you are hired to do, vs. administrative work, random one-offs that go no where, waiting for work, waiting for feedback on work, etc. Sure, when there's a massive deal or things are overflowing there may literally be work that cannot physically get done and you need to pull in more people but largely that isn't going to be the case - and, i think, it sounds much easier than it is to simply slot people in and things get magically done correctly - see my above comments.

Just some thoughts - i'm sure there are good reasons to hire more, or fire some, that i'm not thinking about.

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Oct 23, 2018

People have said why it's not always reasonable to have many people on the same deal given workflow, but I agree there is no excuse for having someone get crushed with 3 deals at once (could hire away this problem by having 2/3 people)

Oct 23, 2018

The banks don't have enough real work to keep the analysts busy for 100 hours. They have 50 hours of real work and the MD's fill up the rest of the time with bullshit.

Of course, the MD's will claim that it's not bullshit work. They'll say that all these far-fetched pitches are worth pursuing. But their bluff gets called because as soon as real work picks up, the bullshit projects get shelved since the analysts only have 100 hours a week to work with. If the bullshit projects were truly legit, the MD's would make the case to hire more analysts.

So roughly speaking: they hire enough analysts to do the real work for 50 hours a week, and the MD's see the analysts' remaining time as a free resources to leverage.

Actual numbers vary but the point is, you won't reduce work-per-analyst by hiring more. The supply of bullshit is endless. Some banks are so poorly managed that MD's are incentivized to rack up pitches even if they have no chance of yielding revenue.

Oct 24, 2018

Then it would be a far less lucrative job.

In reality, a big reason is if you have a kid running a model and a book, it isn't very efficient to split it up among say 3 guys. Everyone has their own way of doing things, and one person missing something in a single cell can screw the entire analysis up, resulting in huge liabilities for the firm if it results in a client acting on false information.

Oct 24, 2018

Or you just end up with the classic, one slide in millions, one slide in thousands, and neither of them have the same number decimal places. Anytime I see shit like $1.0MM and then $750M on back to back slides I have a minor brain hemorrhage.

Oct 29, 2018

God forbid decimal places are not consistent on consecutive slides.

Autistic bankers.

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Oct 29, 2018

I'm aware that this is nit-picky and may be a product of my science background. But if you're doing anything in chem and forget about your sig figs, that shit is as good as wrong. I don't believe in people suffering bc "that's what I had to do," but even from an aesthetic standpoint you want everything to be consistent.

Also take look at my example above (ignoring the decimal issue), now imagine you're an MD reading this, you'd see a 1 followed by a 750 which when skimming would appear as though you were looking at a smaller number on the left and larger number on the right when in fact this is not the case. I understand that it's annoying bc yes there is a millions modifier on the first figure and a thousands modifier on the second one, but any time someone has to stop and reread for comprehension, your point hasn't been made clearly/succinctly enough (much like my post I imagine).

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Oct 29, 2018

Whatever dude, no one cares. Are you in corp bank or IB? Did you come up as an analyst or get in through B-school?

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Oct 29, 2018

Yikes dude, coming in real hot. Corp banking, I know the tag says IB but the sub header is Corp banking associate (can't lie I love that, all the IB prestige none of the hours). Was an analyst at a commercial bank previously, no B-School just attention to detail -sorry "autism".

Oct 24, 2018

If they did it wouldn't be as "prestigious"

Oct 24, 2018

The reason firms don't hire more analysts is because analysts are expensive, don't generate revenue, and, most importantly, turn over every two years.

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Oct 29, 2018

This is the correct answer. A lot of people keep pointing out the the hours wouldn't decrease linearly since someone has to be in charge of the deck. But that doesn't imply that banks are properly staffed - there are many jobs that require a person or small team of people to be in charge of a deck; almost none of them work as much as banking analysts.

The reason analysts work so much is like 25% due to the logistics of a deal process and 75% because banks can make a single person work 80 hours a week with almost no downside to the bank.

Nov 16, 2018
Nov 17, 2018