How Much do Investment Bankers Make a Year
Sometimes we wonder why the salaries of bank employees is huge, here are some explanations :
What is a typical investment banking salary and total compensation?
Bring up investment banking and the first thing that comes to many
people’s minds is the money: six figure salaries at age 22, fancy suits,
private jets, dinners at Dorsia…Very few salaried jobs can match Wall
Street in terms of compensation, and even fewer provide such lucrative
pay right out of college. In this article we will discuss all things
investment banking salary: factors that influence pay, key decision
makers, and the numbers.
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| How Much do Investment Bankers Make a Year |
Compensation Structure
Investment banking compensation is structured as a salary + year-end bonus (and often includes a signing bonus in year 1 for new employees). Generally, Analysts
and Associates begin working halfway through the calendar year, which
makes the junior employee year-end different than the rest of the firm’s
employees. For Analysts, some bulge bracket investment banks provide a
“stub-bonus” at the end of the fiscal year which is
pro-rated for the number of months that you have been working during the
year; this happens with almost every newly-hired Associate. This makes
bonus payments easier for the bank as everyone gets paid at that same
time. Otherwise, Analysts remain on their separate year-end schedule
and receive bonus payments during the summer months (until either
leaving the firm or getting promoted to an Associate). The salary +
bonus structure will become important as we dig into ways and reasons
that investment banking salaries differ.
Factors That Influence Pay
Most outsiders are surprised to learn that personal performance ranks
rather low in factors that determine how much an investment banker
makes (especially at the junior level). In general, salary is fixed
based on 1) the specific bank at which you work, and 2) what position /
year you hold at the bank. Bulge bracket and middle market banks tend
to pay extremely similar salaries to attract and retain top talent. As
salaries remain relatively constant year after year (stepping-up in
tiers), bonuses are what cause major fluctuations in compensation and
are vulnerable to influencing factors. Below we outline the top factors
that affect pay, from
most important to least important:
1. Overall market performance
The financial markets and general economic landscape have the largest influence in shaping investment bank bonuses. In the end, when the investment banks make more money and profits, this trickles down and is shared with employees. In a strong market, more deals occur, more fees are earned, and compensation is highest.
The financial markets and general economic landscape have the largest influence in shaping investment bank bonuses. In the end, when the investment banks make more money and profits, this trickles down and is shared with employees. In a strong market, more deals occur, more fees are earned, and compensation is highest.
2. How well the division (IBD) does within the larger investment bank
When the bank allocates bonus pools, they look to see which divisions performed well and contributed to the bottom line. When IBD has a better year, more money is allocated to employee compensation to reward the division for its contribution.
When the bank allocates bonus pools, they look to see which divisions performed well and contributed to the bottom line. When IBD has a better year, more money is allocated to employee compensation to reward the division for its contribution.
3. How well a banker’s group does
Within the IBD division, groups or offices that perform well and earn more fees are rewarded with larger bonus pool allocation.
Within the IBD division, groups or offices that perform well and earn more fees are rewarded with larger bonus pool allocation.
4. How well the individual investment banker performs
At the very bottom of the process, after banks, divisions and groups allocate bonus pools, better performing bankers will receive a larger portion of the money. Bankers are benchmarked against their peers based on various factors such as who contributed more, worked harder, worked longer, etc.
At the very bottom of the process, after banks, divisions and groups allocate bonus pools, better performing bankers will receive a larger portion of the money. Bankers are benchmarked against their peers based on various factors such as who contributed more, worked harder, worked longer, etc.
Allocating Bonuses
Once a set bonus pool has been determined for a group, it becomes the
job of senior bankers and the staffer to allocate the funds to
individual bankers. At the junior level, each group head is allocated a
specified number of “buckets” (such as top, middle,
and bottom) in which to group their junior employees. Reviews are
sourced from more senior team members in the corporate ladder (a more
senior Analyst, Associate, Director/VP, etc.) and based on
feedback/rankings candidates are then placed into the various available
buckets. Groups that close more deals and earn more fees for the bank
will generally have more top and middle bucket rankings to allocate to
junior employees.
Note: office politics sometimes do play a large role in the process.
In many cases it comes down to who appeared to earn a higher bonus vs.
who actually worked the hardest, especially at the junior level.
Junior Bankers
Analysts and Associates do NOT have control over deal-flow: they do
not control how many deals they are staffed on and which specific deals
they are assigned to. For this reason, compensation is not directly
tied to the deals they work on and instead is based on market factors
and a high-level view of their contribution (as discussed above). With
such limited control over deals and the resulting bonus pool, junior banker pay is relatively consistent and does not fluctuate heavily from person-to-person and bank-to-bank.
Analyst Pay
The figure below is an aggregation of approximate Analyst compensation figures for bulge bracket investment banks. The numbers shown represent averages over the past several years:
The figure below is an aggregation of approximate Analyst compensation figures for bulge bracket investment banks. The numbers shown represent averages over the past several years:
As can be seen from the data, as a general rule bonuses range from
50%-100% of salary. Again, the large fluctuation is mainly due to
general market conditions.
Note: as discussed, investment banks often allocate a set number of
top/middle/bottom rankings per group based on aggregate group
performance. Because of this, it is possible to work as much or more
than an Analyst in another group but receive a lower bonus because your
group had fewer top-tier slots or fiercer competition.
Associate Pay
The figure below is an aggregation of approximate Associate compensation figures for bulge bracket investment banks. The numbers shown represent averages over the past several years and bonuses across tiers:
The figure below is an aggregation of approximate Associate compensation figures for bulge bracket investment banks. The numbers shown represent averages over the past several years and bonuses across tiers:
As a generalization, there has been a trend over the past several
years whereby Associate bonuses have been shrinking while base salary
has increased.
Senior Bankers
Senior Bankers
Bankers that are Vice Presidents (and above) interact with clients on
a daily basis and are responsible for sourcing and closing deals. For
this reason, senior bankers have more direct control over how much money
the bank makes and therefore their pay. Because of this control, senior investment banking compensation is directly connected to deal flow and they experience very wide fluctuations in pay.
In general, as you move up the corporate hierarchy bonuses become an
increasingly large portion of total compensation. At the highest
levels, pay is very closely tied to performance to increase deal flow:
ultimately, senior bankers can be thought of as salesmen (they call it
the “sell side” for a reason) that earn commissions on the deals they
close.
Note: senior positions require many years at each level before
promotion, which leads to the large compensation ranges presented below.
Vice President (or Director) Pay
Vice president salaries start around $175k -$200k and move up from there depending on how many years the individual has been a VP. With bonus, all-in pay ranges from $250k to $750k.
Vice president salaries start around $175k -$200k and move up from there depending on how many years the individual has been a VP. With bonus, all-in pay ranges from $250k to $750k.
At the Vice President level, employees will begin to co-cover larger
accounts and begin to cover their own smaller clients. As they work
their way up and source more deals, bonus potential increases.
Senior Vice President (or Executive Director) Pay
At the Senior VP level, all-in pay ranges from $300k to $1.25 million. By this position, bankers will manage their own clients while simultaneously covering clients with their Managing Director.
At the Senior VP level, all-in pay ranges from $300k to $1.25 million. By this position, bankers will manage their own clients while simultaneously covering clients with their Managing Director.
Managing Director Pay
This level has the largest discrepancy in total compensation. All-in pay can fall as low as $300k if Managing Directors receive no bonus (typically in very poor years), however normal pay ranges from the $700k to $3 million area. Managing Directors that close many deals or high profile transactions can make $10 million+ in stellar years.
This level has the largest discrepancy in total compensation. All-in pay can fall as low as $300k if Managing Directors receive no bonus (typically in very poor years), however normal pay ranges from the $700k to $3 million area. Managing Directors that close many deals or high profile transactions can make $10 million+ in stellar years.
These compensation levels serve as rough guidelines for what you
should expect to earn for a job in investment banking. Though it pays
well, we strongly advise individuals to avoid pursuing a position in
investment banking simply for the money. The number of hours required
for the job makes per-hour pay much less glamorous than you might think
(especially for junior bankers).
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