In July each year, there’s a cry of relief heard at investment banks everywhere, as Analysts’ bank accounts instantly triple or quadruple as the long-awaited bonus finally arrives.
But this year, most offices were strangely silent.
So, what happened? There were bonuses, right? Right?
Well, sort of.
But it wasn’t pretty.
When times are good, investment banking analysts circulate a spreadsheet detailing bonuses at each bank for 1st, 2nd, and 3rd year analysts, usually focusing on what the “top tier bonus” is (i.e. what Analysts who are ranked at the top of their “class” earn).
Back in 2007, the “top tier” bonus for 1st Year Analysts at most banks was $90K, 2nd Year was $115K and 3rd Year was $140K (all those numbers are pre-tax, and no, those are not typos).
When things aren’t so good, though, the situation changes a bit…
Number This Year… Really?
The estimates and “confirmed” numbers this year are all over the place – and besides the fact that they’re way down, there’s not much consistency.
The consensus was that top tier 1st Year Analyst bonuses were in the $40-$50K range, 2nd tier bonuses were in the $30-$40K range, and 3rd tier and below varied from “almost nothing” to around $20-$30K.
2nd Years typically received around $10-$15k more per tier, and 3rd Years received about $10-$15K more per tier on top of that.
I’m not going to bother to list these bank by bank, because no one seems to have consistent numbers. The numbers above were gathered from message board postings and news sites like DealBreaker:
One quick note, though: very, very few Analysts are ranked in the “top tier,” especially at larger banks – so 1st Year Analysts earning even $50K for a bonus this year was quite rare. $30-$40K was far more “typical.”
Our Predictions A Few Months Ago
So, how well did these numbers match our predictions a few months ago? If you recall, I predicted:
- 1st Year (Top): $30K-$45K
- 2nd Year (Top): $40K-$60K
And sure enough, most bonuses fell in this range. These predictions were a bit on the low end since some banks actually paid more than $45K for the top 1st Year Analysts, but overall they were in-line.
The “average” 1st Year Analyst at a bank probably earned between $30K and $40K for a bonus this year.
These numbers, by the way, are pre-tax. The actual take-home was much lower, probably around 50% if you’re living in NYC – meaning after-tax bonuses were around $15-$20K this year for the typical 1st Year Analyst.
That’s not much money if you’re living in New York, and compared to the after-tax take-home of $30-$50K 2 years ago, it’s quite depressing.
Base Salary Changes
More interesting than the drop in bonuses, though, is how most banks raised their base salaries at all levels – 1st Years are now making $70K rather than $60K base, 2nd Years will now make $80K rather than $70K base, and so on.
There’s some talk that this is due to increased regulation and uncertainty over what Washington will “allow” as reasonable bonus payments, but I think the answer is far simpler:
It’s just a matter of inflation and adjusting salaries to match the rising cost of living. Base salaries in investment banking haven’t changed much over the past decade or so, while rent and other expenses have increased – so I’m not too surprised that banks have increased base salaries as well.
Some have suggested that banks will continue to raise base salaries in response to falling bonuses and increased regulation, but I doubt that will happen – at least at the Analyst level.
What This Means
Surprisingly, the answer is “not much that we don’t already know.” Even though one of the big lures to finance is the supposedly “risk-free high income,” the past few years have proven that wrong on multiple counts: from falling bonuses to layoffs to bankers fleeing to Buenos Aires and spending their last bit of money on cocaine.
There’s no such thing as a guaranteed way to make a lot of money with no risk. The more you make, the more risk there is, and anything in finance is highly cyclical – you can expect rounds of layoffs every 5 years or so.
The good news, though, is that getting laid off if you’re just out of school doesn’t matter too much in the grand scheme of things.
VPs who get laid off face a much tougher time, because no other job will pay them $500K per year for doing administrative work and proofreading Word documents.
Why You’re Just Going to Ignore This Anyway
Of course, no one is actually going to pay attention to the summary above: even if bonuses dropped to $0 for 10 years in a row, you would still want to go to Goldman Sachs because of the name and the prestige.
All cynicism aside, you should still reconsider going into the industry if your main motivation is immediate piles of cash – because that’s not going to happen these days. Yes, over the long-term finance will pay more than most other options, but it will always be significantly more risky than your average job at a Fortune 500 company.
So then, what will 2010 bonuses look like?
I would be shocked if they jumped dramatically, but assuming the economy improves a bit, a return to 2008 levels might be plausible.
Personally, I think it will take many years before the economy improves – so a slight change from 2009 numbers is more likely.
And yes, based on recent results Goldman Sachs and JPMorgan are certainly doing better than other banks – but it’s still unlikely that Analyst pay will be significantly different at different banks. It’s a very small percentage of total expenses in the first place.
If you’ve been following the industry and news closely, of course, you should already know all this – and assuming you’re not like those annoying kids in Harold & Kumar asking “what it’s like to be an investment banker” you know that it’s just part of the game.
Historical Bonus Predictions & Actual Numbers
- 2008 Investment Banking Bonus Predictions | Actual Numbers
- 2009 Investment Banking Bonus Predictions | Actual Numbers
- 2010 Investment Banking Bonus Predictions | Actual Numbers
- 2011 Investment Banking Bonus Predictions | Actual Numbers
- 2012 Investment Banking Bonus Predictions | Actual Numbers
- 2013 Investment Banking Bonus Predictions | Actual Numbers
- 2014 Investment Banking Bonus Predictions | Actual Numbers