by Brian DeChesare Comments (55)

2011 Investment Banking Bonus Predictions: Is the World Flat?

2011 Investment Banking Bonus PredictionsThe World Is Flat was released in 2005, but the title applies perfectly to this year’s investment banking bonuses: just swap in “bonus” for “world.”

While we saw the apocalypse and bonus meltdowns in 2008 and 2009, 2010 brought us recovery and higher bonuses.

The economy was better, banks were hiring again, and we had crawled our way out of the recession… or had we?

If this year’s investment banking revenue is any indication, that “recovery” was overblown – because this year’s numbers will be flat, flat, and more flat if my magic 8-ball and Excel spreadsheet are even half-correct.

Why Now?

Remember how this works: investment banks pay out bonuses to analysts 1 year after they start working, sometime in July or August.

Associates and senior bankers get paid at the end of the calendar year / at the beginning of the next calendar year, but here we’re focused on predictions for analysts.

We’re also doing this now because most banks have finished reporting Q1 2011 earnings, so we can look at recent investment banking revenue data and use that in our analysis.

And finally, making these predictions only a few months before real bonus numbers arrive also boosts my chances of being correct.

On a Personal Note…

A few months into my first year on the job, a co-worker – the same one who asked about working on cross-border China deals his first day – told me, “Brian, you don’t care about money enough to work in finance.”

And he was right – I barely look at my bank accounts, I don’t know my yearly earnings until I sit down to calculate them, and I’ve gradually become less interested in bonus talk as well.

But at least back in 2008 I was still in the industry, and in 2009 and 2010 I wasn’t that far removed.

This year, though, I find myself less interested and less sympathetic to (senior) bankers – while they may not be destroying the world, it’s not exactly like they’re improving peoples’ lives or solving important problems either.

Oh, so Managing Directors “only” make an average of $1.6 million now and can’t afford private school for their kids?

Better declare bankruptcy…

The World at Large

A lot happened over this past year, from massive natural disasters to political uprisings that toppled autocracies to Jack Bauer’s slaying of a certain terrorist leader.

Governments intervened more and more in banks’ affairs, and the future of fields like prop trading at banks isn’t too bright.

This is not a news site, so I’m not going to recount each major event; I would summarize the past year by saying, “Developed markets kept falling further into decay and bankruptcy, while emerging markets surged ahead.”

It’s no coincidence that Asia is excluded from that image at the top – that might be the only non-flat region of the world this year.

We already knew about European countries going bankrupt and then even more bankrupt, but now it seems likely that the US will join them.

Amazingly, I still get questions from readers wondering how they can get visas for the US and leave regions like India, China, and Brazil.

You might want to re-consider your plans: going to the US now would be like becoming a Roman citizen in 475 AD, just 1 year before barbarians took over and deposed the last Emperor.

Work in more promising countries, and let the US, Europe, and Japan continue to decline into irrelevance.

The Usual Suspects Assumptions

Before I get too carried away with doomsday predictions let’s get back to those bonus predictions.

The basic idea is that we can use the increase or decrease in banks’ revenue to predict bonus increases or decreases.

To do that, we’re assuming that:

  1. IB bonuses will be awarded proportionally to the bank’s net investment banking revenue – not what they earn in other segments like trading, wealth management, or retail banking.
  2. Banks will still allot 50% of their net revenue to compensation – just one of the benefits of having no substantial expenses aside from employees.
  3. Analyst bonuses are paid based on TTM (Trailing Twelve Months) numbers – revenue from June 30, 2010 to June 30, 2011 – as opposed to calendar year 2010.

It’s impossible to verify these assumptions, but the method hasn’t changed much in the past 10 years aside from fluctuations in the compensation to net revenue percentage.

Changes from Last Year

The set of bulge bracket banks in our analysis has remained the same.

Back in the 2008 predictions we still had Lehman and Merrill – how nostalgic – and in the comments I even wrote, “Of course, if something crazy happens and Lehman collapses or something…”

Maybe I’m not the best at predicting financial crises.

One of the boutiques from last year – Thomas Weisel – was acquired so I replaced them with a few new boutiques (FBR, Gleacher, JMP, and KBW) to add variety to the set.

Remember that the banks must be publicly traded or you can’t find their numbers – that’s why places like Moelis & Co. and Perella Weinberg are not on the list.

Bulge Bracket Numbers

So, what’s the damage?

Maybe not quite as apocalyptic as the 2009 numbers, but calling these figures “good” is quite a stretch.

Yes, the most recent quarter looks better than the trailing 12 months, but that doesn’t mean much if your bank underperformed in the first half of this period (see: Citi, UBS).

Boutique & Middle Market Numbers

Smaller firms look a little better:

But if you remove the outliers from this set (Cowen and JMP) you get similar results to the bulge bracket numbers: median 1.6% revenue decline in the TTM period and 10.4% growth in the most recent quarter.

Remember, the most recent quarter looked better last year as well but that didn’t result in the 80% bonus increase you were hoping for.

Also realize that revenue is much “lumpier” for smaller banks because one huge deal can change everything for them – so the bulge bracket numbers are more reliable bonus indicators.

Wait, What About Bank X or Bank Z That You Didn’t Include?!!! What About Other Regions / Currencies?!

There are plenty of banks that are not included on these lists – but the idea here is to get a sample and come up with a rough idea of how bonuses might change.

Adding 100 banks to the set wouldn’t change the numbers much, especially since bonuses elsewhere follow what global investment banks do.

Getting this data is about as much fun as a root canal, so unless you want to jump in and do all the work for those 100 other banks this set won’t change much.

2011 Predictions

Based on these numbers, it seems like bonuses will increase by 0-10% this year.

My real guess is that bonuses won’t change at all.

But predicting a 0% change from last year seems too safe and overly pessimistic – even for me – so let’s just say 0% for the downside case and 10% at the high-end.

Last year’s top numbers were:

  • 1st Year Top Tier: $50-$65K USD
  • 2nd Year Top Tier: $65-$80K USD

And my predictions last year were:

  • 1st Year Top Tier: $60-$70K USD
  • 2nd Year Top Tier: $80-$90K USD

I was a little too optimistic back then, so by applying a discount for that and other secret factors, we can get to this year’s predicted range:

  • 1st Year Top Tier: $55-65K USD
  • 2nd Year Top Tier: $70-80K USD

I’ve increased only the bottom number to make the range narrower, and also because an increase on the high end seems less likely.

Numbers in London are similar but are paid in pounds instead, so just multiply by the exchange rate to get an estimate.

These numbers are all pre-tax – if you’re in NYC or London, wave goodbye to 50% of that bonus, and if you’re in Dubai or Saudi Arabia you can keep 100% of it.

But What About Numbers In…. [Insert Other Country Here]

Given my doomsday predictions above, you might wonder why I’m projecting everything in US Dollars and why there are no projections for other countries.

That’s mostly because the data is more difficult to find elsewhere, and because base salary and bonus numbers may be so different that this analysis no longer makes sense.

As far as other countries, though, you might see an increase in bonuses in regions where the economy is doing well (BRIC countries and Australia, for example) – but it’s hard to compare directly because pay in emerging markets is often much lower and a significant increase doesn’t mean as much.

2012 Numbers?

The most recent quarter showing more of an improvement than the trailing twelve months might indicate that we’re set for a bonus recovery next year.

But I wouldn’t bet the farm on it, because I don’t see the situation in developed markets improving unless governments undergo massive structural changes and spending is greatly reduced.

Flat to minimal growth next year seems like the more likely scenario, barring a cataclysmic event or economic boom.

The True Test

We’ll see what happens when bonuses are announced in a few months and I’ll write a follow-up piece on how accurate or inaccurate these predictions were.

Update: 2011 Investment Banking Bonus Numbers.

You can entertain yourself with bonuses from years’ past right here:

Historical Bonus Predictions & Actual Numbers

And just keep dreaming of the day we’ll make it back to that all-time high of $90K USD for 1st year analysts in 2007.

M&I - Brian

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

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  1. Hey Brian!
    First of all, great website, I’m a long time lurker.
    To the question: I’m applying to an M&A position into a non-finance firm (e.g. a mall company, logistics company, holding, etc.). How is the pay in those areas? I assume the lifestyle is much better, but then I’m afraid I won’t get any bonuses. Do you think it’s any better than a regular job in the same company? (e.g. marketing, supply-chain, hr…)

    1. M&I - Nicole

      I don’t have the exact numbers, or whether you will get a bonus at these companies or not.

      Better than a regular job? Depends on how you define a regular job. I do believe it is a M&A role and you focus acquiring the relevant skills, it will maximize your exit opportunities.

  2. I cannot tell you how much help this site has given me.

    I would like to know recent developments in investment banking and how they effect the IBD.

    Thanks in advance

    1. M&I - Nicole


      Recent developments in IB –

  3. At this stage I would consider a top MBA program as your best chance for breaking in – with 13+ years experience that’s the best shot you have. And to be honest, IB is still a stretch at this stage – maybe think about trading instead since they care less about previous work experience.

  4. Hi Brian,
    Are these bonuses the same for the IT departments of these IBs? Just got accepted for a Software Development role at JPM and I was wondering.

  5. Even though I work in finance, I’m glad bonuses are coming down.

    It breaks my heart when I interview kids with advanced degrees in computational neuroscience or biomedical engineering who gave up their lifelong dream of becoming a doctor because they “discovered” what they really wanted to do all along was move money from one part of the globe to another.

    1. Completely agree, this is why I’ve lost interest in these bonus predictions

  6. Hey Brian, where do you get that bonuses are taxed at 50%? Is that in the tax code?

    1. You are taxed on the assumption that the bonus is what you earn every week. So $60K bonus = you get taxed on that bonus payment in terms of withheld taxes as if you earned $60K each week of the year. Federal + state + city taxes add up to around 50% at that level in NYC and London.

      1. Ok, but that’s just the withholding right? And then you get a refund after you do your taxes and reveal your all-in income for the year?

        1. Yes but in practice you don’t get much of a refund, I forget exactly why (and have no desire to go back and look at the tax rules to figure it out) but effectively you still pay more in taxes than you would expect.

          1. Ok, but it is true that, in the end, your bonus isn’t taxed any differently than your salary/ordinary income? If you make 70 + 10 + 60 (hypothetically) = 140, (most of) your bonus amount is taxed at the 28% federal rate (+ state & NYC, etc.). I can’t imagine it’s anywhere close to effectively 50%… probably doesn’t even hit 40%.

            Sorry for dwelling, I just want to make sure I’m not missing something.

          2. I don’t remember the exact rules but in 2007 I received a $90K bonus and only got $53K or so after taxes, and that was in California. Maybe consult with someone in the industry right now.

          3. That checks out after a quick and dirty check. Assuming 60 + 10 + 90, running a gross annual income of 160 through gives a rough effective tax rate of 40% for 2007 in CA.

            1 – 53/90 = ~41%.

            So yea, not quite 50%, but certainly still a lot.

  7. I wanted to know if there is some sort of online test (free) that I can take to see how my banking aptitude is? What about sample questions from the CPA exam?

    1. Don’t think there is on the first one. There are tons of accounting and CPA training materials – see CPE Link, not sure about sample questions but they have lots of materials.

  8. Hi Brian (and crew),

    I am supposed to email an MD (a recruiter) to have lunch.

    Can you please be so kind as to tell me if the following email structure is good?

    Hi Mr. MD,

    This is Future Analyst from Non-Target University.

    I just wanted to let you know that I just finished my spring semester, and I’m back in NYC.

    I was wondering if you’d be able to meet and have lunch sometime this week if your schedule permits?

    I am free to come by anytime this week.

    Please let me know what time works best for you.

    I look forward to meeting.

    Truly yours,

    Future Analyst

    1. That looks OK but you should propose a specific day(s) and time(s) otherwise it’s too open-ended.

  9. polishingg

    Hi, Brian
    I learned a lot from your tips on the IB interviews? I get some chances to have interviews with some boutique IBs focusing on more technically DCM like distress debt. Can you share some advices?
    Another would be main differences between interviewing the investment management industry and IB industry? Will u share some similarities or other tips?

    1. I don’t know much about distressed debt specifically but distressed M&A and Restructuring are covered in the interview guide, I would just make sure you know the basics. Investment management is similar but you don’t get technical questions in the same way and your investment ideas / passion for investing are far more important.

      1. polishingg

        btw, What’s difference between investment management, asset management and private equity? Just because PE adopt more aggressive way like LBOs?

        1. See the latest article. Investment management / asset management = buying individual stocks, PE = buying entire companies.

  10. Brazilian banker

    My friend at MS IBD (Brazil, 1st year analyst) makes 80k base + 80k expected bonus USD (he said that was what 1st year analysts got last year). I guess you should review your assumptions that bonus in emerging economies are lower. All my friends at other IBDs are expecting similar pays. I think Brazil is doing really well on the deal flow side.

    1. Yes but that is MS… if you look at regional firms the pay is likely lower than that. It also depends on the market, for example in China the pay at local firms is significantly lower than international firms.

      1. Espanol

        M&A analysts at BB offices in Spain (Madrid) make +50% what their peers make in London at the same bank. Cost of living in Madrid is way lower than London.

      2. Just another Brazilian banker

        Not really. Traditionally, the top three banks compensation-wise in Brazil are BTG Pactual, Credit Suisse and Itau BBA (probably in this order). You can see two local names up there.

        The bonus you mentioned on your forecasts are some 15% below that of a first year analyst at equity research for any of those three. IBD gets some 30-40% larger bonus than research (not so sure about s&t though). Btw, numbers won’t be much different for MS, GS, JP, BofA etc.

  11. Hey Brian,

    Are you currently in Sydney? Would you open to for a meetup? If so how would one contact you?

    1. Yes but I am super-busy right now trying to finish a new course – the last week of May is better. If you leave a comment with your real email address (only site admins can see that) I will contact you.

      1. Thanks Brian

  12. Jonathan

    Hi Brian,

    I was wondering what happens to people who start early? ie Jan. Is the bonus pro-rata or do they give you some small pocket change?


      Mixed reports but generally not a good idea for other reasons mentioned there

  13. Hey

    Love your website even tho the more I read into it, the more scary it gets and the less likely I have a shot at this investment banking thing.

    Anyways, I was listening to some of your old podcasts and Brian from Mergers and Incquisitions has a really sexy voice. You should make some posts on how we can sound more like Brian.


    P.S. I’m a dude and I’m serious no trolololol here

    1. Haha not sure how to respond to that one. You should join BIWS if you really want to hear my voice all the time.

      1. madman

        Best reply EVER.

  14. Dear Brian,
    I don’t think the days of America are over. Overall we are in very good shape compared to Europe and Japan. We can’t compare ourselves to China because they are still developing and have a population more than three times our size.
    If we want to improve our country, all we need to do is start seriously cutting spending in defense, increase spending in science, technology and research, and reform education.
    Just my thoughts. And I love your articles!

    1. While it may not end tomorrow, I think the growth phase of the country is over. 5-10 years ago I was more optimistic, but having lived in many different countries since then, my views have changed.

      I wouldn’t tell you to go somewhere else just for the sake of leaving the country, but these days if someone has a connection to a faster-growing region it doesn’t make sense to go to the US given slower growth and the difficulty of getting a visa there.

  15. Hi Brian,

    I’m an avid M&I reader, thanks for the great articles. I recently noticed that an MD I interviewed with circa 1 year ago was checking out my LinkedIn profile this week. Curiosity set in, so I checked out his company’s career site, and it turns out his group has an opening for an analyst. Should I shoot him a note expressing interest? Keep up with the great articles.

    Best Regards,


  16. Steve Chang

    Business/Finance Career related global planning question, since you are speaking of opportunities in developing markets

    I am currently engaged to a South African girl whose father has decent business/finance connections. Do you think that South Africa has more potential ( for those who have some ties to the country) for an ambitous person long term then the USA?


    1. Yes. Some people say it’s better to start in NY or London at least if you want to do finance, but I’m not even sure how true that is if you have no interest in working in those places long-term.

    2. Saffer

      I’m a South African with a PE/IB background in Europe/Asia. South Africa has tremendous opportunities for people in finance as well as for entrepreneurs. There’s been a hell of a brain drain so lots of gaps to fill (albeit with some challenges, see below). My friends in IB are earning in line with what I get in Asia (which pretty much is NY/London pay with much lower taxes) except their living costs are about a third of mine. As with anything in life though there’s a trade-off: I choose not to live there because the politics + crime is driving me nuts, but at the rate business is going I might have to go back because there’s money hanging on trees over there. Couple of things to note though: 1. Very hard getting work permits for foreigners so start early even if you are getting married, 2. Affirmative Action is likely to be an issue if you want to go into banking (ask your gf), 3. Connections are super important in SA, so if your gf’s dad is well-connected you’d be in with a good shot at making it. Have to agree with B though, a bit of London/NY before you head off will def go down well ito your reputation over there. Anyway, worst case just go to SA for a few years and have some fun in the sun, best case you buy yourself a few small African countries (next to one of mine). Either way you’ve already ‘won’, you got yourself a South African wife! Lucky man…

  17. Drooling over that legendary 2007 A1 bonus figure …

  18. Fwiw Australian base salaries for top/mid tier 1st years are circa AUD100-110K with bonus running 40-60%.

    1. Yeah Australian base salaries are much higher with lower bonuses as a % of salary, think someone brought that up on the 2010 article. But then the cost of living in Australia is much higher as well (I’m paying a ridiculous amount for my apartment in Sydney, higher than Manhattan prices).

      1. Really? I’m based in Melbourne and while the cost to actually buy a house is ridiculous the rent is comparatively cheap. My understanding was that Manhattan would be much more expensive than either melb or syd. Interesting.

        1. Apartments in Sydney CBD are 20-25% more expensive than NY and the falling USD makes it even worse (at least for Americans…). Areas further out are a little better but AU housing is still the most overvalued in the world:

  19. Hi,

    Thanks for the great website. I’ve enjoyed it a lot!

    I was wondering if you would happen to know anything about the bonuses paid in the IB or corporate finance divisions of the big-4 accounting firms? How about the pay in general?

    I’m a M.Sc. from Europe and I’m about to start as a transaction services analyst at one.


    1. Honestly not sure there and numbers are more difficult to come by for Big 4. I would imagine that base salaries are similar to IB but bonuses are far less because of lower fees, higher operating expenses, reduced hours, and so on. Someone else might be able to help here.

      1. Big 4 tends to be around 50-60k base with 5k-10k bonus out of undergrad in the U.S. Perhaps you can extrapolate that out for someone with a masters.

        1. Thanks for sharing that, I guess Master’s students would see a slight bump to base salary and bonus but nothing dramatic.

    2. Anonymous

      How is Cain treating ya big guy?

      1. Anonymous


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