The difficult thing about an investment bank’s compensation structure is that it is exactly what the name suggests – a structure. Different points have to bear some sort of reasonably stable relationship to one another; you can’t have completely different pay scales for sales and trading compared to capital markets and advisory, and the salary increments between ranks have to be significant enough to make it worth people’s while to chase promotion. So when the analysts are getting big pay rises, it’s pretty certain that associates are also going to see an increment.
JP Morgan is the latest big bank to recognise this inevitability, with an announcement going out that first year associates joining via the MBA programme will be paid $175k, up from $150k last year. No announcement has yet been made about the rest of the associate program, but it’s hardly likely that second year associates will be paid much less than first-years, or that internally promoted ones will put up with less money than newly hired MBA grunts.
And although there is less of a direct connection, we’ve seen over the last six months that it’s very difficult for any bank to remain significantly out of step with the overall industry pay norms. So by the end of the year, it’s very likely that the entire top tier of investment banking will have seen the basic element of junior banker compensation go up by somewhat more than 15% across the board. Several firms have already bitten this bullet, with Deutsche, Barclays and UBS all raising salaries for associates at the same time as analysts.
But the question now has to be asked – does this really mean more money? Even at the associate level, variable compensation is often bigger than salary, and at Vice-President or above, it’s pretty much de rigeur to think of things in terms of total comp. The pay rises being announced now don’t necessarily mean all that much if the extra $25k is just taken back out again at the end of the year (or for European banks, early next year).
In fact, there’s a large element of window dressing here. Basic salaries for first year analysts and MBA associates are practically the only parts of the compensation structure where there is visibility and where comparisons are made. For most bankers, there’s no way of knowing for sure how much your colleagues and competitors make, only rumour and assumption.
The strong performance of revenues so far in 2021 is likely to mean that these sorts of questions can be avoided in the short term – although bonus pool accruals were not growing as fast as revenues at the H1 stage, there should still be enough to give most bankers a bonus that compares favourably with the recent past. But if the market cools even a little bit, we might see a leverage effect with variable comp having to fall a lot further than it otherwise might in order to meet cost targets. And if things cool a bit more, some highly paid associates and analysts might have cause to wonder whether it’s an entirely unmixed blessing in terms of job security to have locked in a significantly higher fixed cost.
On a totally different theme, if you needed a further reason to stay out of prison, according to the experts you would probably be no good at it. Apparently the skills needed to succeed in Wall Street are “not only in large degree useless, they are probably counterproductive”. That’s the view of Jeffrey D Grant, who runs a prison ministry focused on white collar criminals. He adds that “Business rewards a certain type of attitude and assertiveness—all things that will get you killed in prison”.
Even when you get out, Grant notes that bankers often have problems adjusting to the fact that their world has fundamentally changed. Because of the examples of people like Michael Milken, they tend to assume that it’s possible to make a comeback to the kind of life they lived before when it usually isn’t. One of the members of the ministry group has launched “Commissary Club”, the exclusive social network for executives with criminal histories, but it’s unlikely to be competing with LinkedIn any time soon.
Meanwhile
A profile of Cathie Wood of Ark Investments, with a lot about her fan club of Redditors and her Christian faith, but also tackling interesting career topics like the difficulty of being an aggressive growth investor at a conservative firm, and the pluses and minuses of always sounding very certain about your decisions. (New York Times)
A slightly complex looking co-head situation at Barclays – David Cross has been recruited from Deutsche to be co-head of European flow rates trading, while Jon Desler takes the other half of the co-headship and retains his role as head of short term interest rates for EMEA and APAC. Both of them will report to Nat Tyce, head of EMEA/APAC macro trading. (IFR)
“It almost killed me” – Ian Clarke’s mammoth report on racism in banking took 300 hours of work over six months, alongside his full time job. (Financial News)
Credit Suisse has hired Emre Gunalp from BNP Paribas to be global co-head of diversified industrials investment banking (Bloomberg)
Advice on how to handle the delicate negotiations associated with soliciting a bid-back from your current employer when you have an alternative offer that you don’t really want to go to. “It’s like dating … you have to express your interest in remaining in the relationship”, according to one career consultant who might not necessarily have thought the analogy through. (WSJ)
On the related topic of “boomerang hires”, Ian Long is heading back to Deutsche Bank, where he used to be head of equity capital markets in China. After spending time at ICBC as head of Asia ECM, he will now be Deutsche’s vice chairman for investment banking coverage and advisory in Asia. (Bloomberg)
Chief executives are getting significantly more polished in their video communications to employees. (FT)
Photo by Timis Alexandra on Unsplash
