by Brian DeChesare Comments (61)

2013 Investment Banking Bonuses: Is “Flat” Better Than Nonexistent?

2013 Investment Banking BonusesIt’s the end of the summer, and you know what that means: 2013 investment banking bonuses have arrived.

(OK, only at the analyst-level and only at some banks – GS now pays bonuses at year-end for all levels.)

The good news: despite a terrible economy, a pathetic “recovery,” and a Federal Reserve that should be disbanded for supporting crony capitalism and introducing irresponsible monetary policies that will likely result in a global financial meltdown worse than the Great Depression, you still got paid this year.

The bad news is that my own predictions were off, and most banks paid less than what we called for back in June in the 2013 bonus predictions infographic.

We predicted a 10-20% increase, but bonuses at the analyst level came in flat at most banks.

The key trend is something altogether different: many banks, even within the same tier, now pay substantially different bonuses to analysts.

The days of “Street” compensation seem to be long over, so maybe I should get back into the business of ranking the banks once again

What’s the Damage?

Let’s start with the rough “median” numbers and then look at a few places that paid above and below these figures:

  • 1st Year Analyst, Top Tier Bonus Bucket: $55K USD
  • 2nd Year Analyst, Top Tier Bonus Bucket: $70K USD
  • 3rd Year Analyst, Top Tier Bonus Bucket: $90K USD

Yes, you read that correctly: bonuses were effectively the same as last year’s numbers at most banks.

In terms of total compensation, that comes out to:

  • 1st Year Analyst, Total Compensation (Top Tier Bonus Bucket): $125K USD
  • 2nd Year Analyst, Total Compensation (Top Tier Bonus Bucket): $150K USD
  • 3rd Year Analyst, Total Compensation (Top Tier Bonus Bucket): $180K USD

Here’s a chart showing the accuracy of our predictions over the past 6 years:

2013 Investment Banking Bonuses

These numbers are quoted in a lot of places because everyone likes to focus on the top tier bucket.

Keep in mind, however, that VERY few analysts actually receive these bonuses because only a small percentage rank in the top tier.

So take off around $10K per level to see what the “average” bonus was (i.e. $45K USD, $60K USD, and $80K USD across the 1st/2nd/3rd year levels).

$115K total compensation for your first year out of undergraduate is not too shabby, but it is a step-down from the bubbly days of 2006-2007 when $140-$150K total compensation was within range.

More analysts also ranked in the top tier back then since banks paid less attention to compensation costs.

But Here’s Where It Gets Interesting…

I mentioned that banks now pay significantly different bonuses, even within the same “tiers.”

Here are a few examples:

  • BoAML apparently paid higher-than-median numbers, and the top tier bonus for 1st year analysts was $70K USD. Very nice.
  • Some middle-market and boutique firms paid less than these numbers – e.g. RBC only paid $50K USD for the top tier 1st year bucket, and Raymond James paid in a similar range with 3rd top tier bonuses around $10-20K USD lower than the “median” above.
  • But then some boutiques, such as Moelis & Co., paid bonuses significantly above these numbers – with some reports of an $80K USD top tier bucket for 1st year analysts and $90K USD for 2nd year analysts. A few others also paid above the median figures, though not as high as the Moelis numbers.

So that is the world we live in in 2013: interest rates are near-zero, economic growth is laughable, and you might earn more money as an IB analyst at Bank of America Merrill Lynch than you would at Goldman Sachs.

Once Goldman opens up its own chain of ATMs, the cycle will be complete.

Why Did Compensation Stay Flat at Most Firms?

Good question.

Deal activity, advisory fees, and investment banking revenue at most banks were all up by 10-20% over the same period last year, so how could compensation have stayed flat?

Four factors come to mind:

1. Banks Changed Their Compensation as a % of Net Revenue Targets

This last one is the most likely culprit, at least for the change in compensation this past year.

Historically, banks have awarded 50% or more of net revenue to employees in the form of compensation.

But now, in an attempt to boost their ROE (Return on Equity = Net Income / Shareholders’ Equity – one of the key metrics banks are judged by and similar to revenue or EBITDA growth for normal companies) and regulatory capital due to Basel III and other new regulations, banks are moving this target closer to 40%.

Think about the numbers: if banks paid out 50% of net revenue in the form of compensation in the past and revenue increased by 10-20% this year, paying out only 40% of net revenue in employee compensation would result in roughly flat compensation with a 20% increase in revenue, and a ~5% drop with a 10% increase in revenue.

These percentages are lower at more diversified commercial banks such as JPM, but even there the ratios have been falling in recent years.

This has become so significant that I’m going to factor it in when running the numbers next year.

2. Weak Economic Data and Outlook

There have been a few bright spots this past year, but also plenty of negative data on everything from GDP growth to the unemployment rate.

And the slowdown in emerging markets is very real, with China’s growth rate tumbling and unlikely to return to the 10%+ level anytime soon.

Banks may be less likely to increase bonus payouts when the “real economy” is still so weak – and much of the increase in M&A activity since the financial crisis has been driven by easy money and low interest rates rather than real economic growth.

Just think about this fact: low interest rates and QE may have been responsible for 47% (not a typo) of S&P earnings growth since 2009.

3. Uncertainty Over Government Policy

Another issue is that no one can tell when the Fed will scale back QE, or when central banks following similar policies around the world will do the same.

It has gotten to the point where the entire stock market moves up and down based on suspicions of the Fed’s next move; it’s almost like a top-down planned economy rather than capitalism.

Banks know this, of course, and they don’t necessarily want to increase bonuses right now since the stock market and deal activity will both take a plunge when quantitative fleecing finally stops.

4. The Affordable Care Act (“Obamacare”) and Rising Healthcare Costs

I am very tempted to write a 20,000-word article that explains why Obamacare is such a horrible idea, but I’ll say this for now: this legislation effectively increases healthcare costs for all companies, including banks and finance firms of all sizes.

More money spent on health insurance that you don’t need = stagnant-to-declining salaries and bonuses.

In fact, wages across all industries have stagnated or declined over the past 10 years partially because healthcare costs have grown at ~2x or more the rate of inflation.

Between 2003 and 2011, for example, average premiums rose 62%but cumulative inflation was only 25% over the same period.

Sure, banks have more money to spend on employee compensation than other firms… and some finance firms do already offer very generous health insurance plans

But at some point, rising healthcare costs eat into banks’ profits just like they’ve eaten into everyone else’s.

What About Associate Pay and Pay for More Senior Bankers?

Bonuses for senior bankers are paid out at the end of the year / early next year, so no one has the numbers yet.

A lot of people have been predicting a 10-20% increase, just as we did for the analyst numbers above, but this conclusion seems doubtful now.

I would expect, at best, a flat to 5-10% increase in pay at the more senior levels – counter-balanced by an increasing percentage of compensation in the form of stock and deferred payments.

What About Different Regions?

No, I don’t have the numbers for other regions, sorry – it takes too much time to gather all the numbers and I can’t justify spending hundreds of hours on it if we give away the information for free (and I have no interest in releasing paid compensation reports).

There are plenty of companies that issue compensation reports each year, so I would check the Job Search Digest reports below if you want all the data by region and other criteria.

In general, total compensation in most other developed countries at large banks follows the numbers quoted above for the US, but the split between base salaries and bonuses may be skewed more toward base salaries; some regions these days may pay above the figures above (great article on Brazil), and once you go beyond the global banks you get into unpredictable territory.

PE and HF Pay?

Again, your best source is Job Search Digest. Here are the stats for 2012 compensation:

  • Hedge Fund Summary: Average cash compensation of $314K USD, up 15%; average compensation did not differ tremendously between different fund sizes.
  • Private Equity Summary: Average cash compensation of $273K USD, up 16%; PE almost always offers higher pay then VC, though there are exceptions for Partners at some funds.

No, no one has 2013 numbers yet because they are determined at the end of the year into early next year.

Outlook for 2014 and Beyond

I continue to be very skeptical of the monetary and fiscal policies in developed countries because most governments are ignoring huge structural problems or “hiding” them via artificially low interest rates rather than reforming their broken systems.

Until that changes, I doubt that we’ll see any real economic strength. Sure, the stock market might keep surging if QE continues and there’s no “tapering,” but that party’s not going to last forever.

So at this stage, I would expect flat to slightly negative growth in compensation for 2014.

If interest rates jump by more than expected and “easy money” really stops, that could turn into more like “substantially negative growth,” at least in the short-term.

PE and HF pay will hold up better than that because of lighter regulations and compensation that’s less tied to deal activity in the current year, but the % increase will likely be less than the 2012 figures.

Other Predictions:

  • We’ll see more municipal bankruptcies in the US. If you thought Detroit or Stockton looked bad, well, what about the entire state of California going bankrupt? Meredith Whitney wasn’t wrong on her call back in 2010 – the timing was just off. High pension costs, inflexible unions, and declining populations really do make many cities fiscally unsustainable. Chicago may be the next major city to declare bankruptcy, and the mayor seems to agree with me.
  • China’s “banking system,” by which I mean a giant black hole that no one really understands, will continue to come under pressure and bank failures are likely. Apparently, they didn’t learn anything from the US when it came to that whole “Use a lending bubble to prop up a weakening economy” strategy.
  • Europe, Europe, let’s see… eh, nothing good to say there, maybe I just won’t say anything at all.

Your Thoughts

One final point: data on bonuses was less widely reported this year than it was in past years.

So if you’ve heard any specific numbers, or you agree / disagree with the results above, feel free to post your findings in the comments below.

NOTE: Given the content of this post, more optimistic numbers and findings are highly encouraged…

Historical Bonus Predictions & Actual Numbers

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.

Break Into Investment Banking

Free Exclusive Report: 57-page guide with the action plan you need to break into investment banking - how to tell your story, network, craft a winning resume, and dominate your interviews

Loading the player...
We respect your email privacy


Read below or Add a comment

  1. When are bonus estimates coming for 2014??

    1. Early May 2014 after the large banks announce Q1 earnings.

      1. Sorry are the estimates out?

  2. Comp Question

    If an analyst starts in June 2014, when would he or she be considered second years in terms of pay? Would the analyst be paid pro-rated salary and bonus as a first year for the remainder of 2014, and then starting 2015 be paid as a second year? Or would the step-up only occur in June 2015 after an actual full year of work?

    1. M&I - Nicole

      It varies a/c to the bank and your team. Usually May/June 2015. I don’t think so but it depends on the bank. Yes after a full year of work I believe.

  3. Corporate Monkey

    For most bulge bracket firms, what is the policy if someone leaves after their 1st year (post-compensation day)? I’ve heard two different sides. One is that you are allowed to keep your bonus. The other is that if you decide to leave after your 1st year (post-comp day), then you forfeit your bonus on a pro-rated basis. Is there a correct answer to this, or is it a firm-by-firm for the larger banks?

    1. M&I - Nicole

      I think it depends on the firm and your contract.

  4. Hi

    Im currently in corporate banking as an A3 on 110k + stable 50% bonus (expected pay growth prob c.10-15% pa).

    I currently have an offer from a tier 2 IB to come across at A2 (move to A3 in 6m) on 110k + riskier 60-80% bonus

    Is it a rational move given my hours will be 1.5x more? What are pay rises from say A2 to Associate 3 IB level (30% pa?)


    Ps: in Australia

    1. M&I - Nicole

      Yes your hours are likely to be higher.

      I am not quite sure about the increase in pay scale because it varies a/c to the firm as well as team/individual performance. Others may have more input

  5. Do you think a flock of 1st year analysts will quit / lateral / go buyside in September given that 1st year bonuses (relatively) sucked? How do you project the off-cycle / lateral hiring market to be like in the next 1-2 months? Will how things go the day after labor day be a good indicator?

    1. Maybe, but I don’t think there’s much of a correlation. People leave all the time, and if they really hate the job an extra $10-20K won’t convince them to stay for another year. So I wouldn’t try to “time” the market necessarily.

      If you’re looking to make a lateral move, I would get started ASAP. An upcoming interview will cover this topic.

  6. So you’re saying that JPM bankers get paid less per deal than at other firms? Hard to believe given that they retain some of the smartest people in the world who would otherwise jump ship to another shop.

    1. ??? I’m not sure where you got that from.

      JPM pays, and paid, bonuses in-line with other large banks.

      The reason that compensation as a % of revenue is lower at JPM is that it’s more diversified than, say, GS or MS, and therefore they have more employees outside of IB and S&T who earn less. For example, they have bigger commercial banking operations and employees there do not earn as much.

      If you look at just IB compensation as a % of revenue it is probably about the same at most banks. But banks don’t disclose compensation by division in some cases, which is why, if you look at total compensation / total revenue, it would be lower for JPM.

  7. Brian , are you Republican or a Democrat?
    Who does the m&I team lean towards?

    1. I can’t speak for everyone else, but I think you can infer my views pretty easily from this article and past ones on the site

  8. An IBD intern recently died. Do you think this will change the culture at all?

    1. See the upcoming post tomorrow (Friday) on this one.

  9. Off-topic but I had a question on networking.

    If you’re at a target school with a decent CV then should you bother with networking (I mean cold-calling) for BBs?

    To clarify, if you know they have online applications and everything then should you try cold-call people at the bank to network even though it’s likely they’ll just tell you to apply online (which you already know about)?

    1. I would not bother with cold-calling if you can find alumni at the bank and/or go through alumni to get referrals to people at the bank. Cold-calling, in general, does not work as well at large banks though there are exceptions.

  10. What happened at Macquarie?

    1. My understanding is that analysts received bonuses close to $0 due to the banks’ performance. Pretty shocking there could be that much of a variance in pay, but it is a risk of going to a smaller firm (at least, smaller in some markets) like that.

      1. Do they still have employees?

        1. Yes, though I think a good portion have quit or been forced out…

          1. Dick Tracy

            Great article and thanks for gathering all those data. Could you shed light on how analyst buckets are determined or point to other posts that elucidate?


  11. Do you really think there’s anything more than a remote chance of another financial collapse? I agree that growth will probably continue to be flat, but if the Fed eases up on QE or raises interest rates causing the tepid growth we have to slow down, I think the Fed will reverse those policies.

    Also, I would like to read your full thoughts on Obamacare. It is hard to find intelligent apolitical views on it. I’m specifically interested in how you think it will affect economic growth and no just banking compensation.

    1. Yes, though I don’t know if “collapse” is the right word. I think there’s at least a 10% chance of some sort of crash in the next few years. But it’s hard to say because the Fed has never pursued such unconventional policies for so long.

      OK, I’m seriously considering a healthcare article now but it is probably a few months away given the amount of research required for it. I don’t think I’ve seen a detailed analysis backed by real data before – you’re right that it’s mostly unsubstantiated claims from both sides.

  12. Big4 Base salaries (for M&A) are the same as JPM’s base but working only 60 on average instead of 80+. However this is compensated by the bonus. Calculated break-even is 88h. Overall: There is still a gap ($ p.h.) but it became smaller in line with Brian’s estimated trend of the payout ratio towards 40%.

    1. Thanks for sharing, interesting that the $ / hour gap is shrinking.

  13. John Ellis

    What about public finance bonuses?

    1. Depends on the firm, but generally base salaries are similar and bonuses are at anywhere from a slight discount (70-90% of base salary) to a huge discount of 10-20% of base salary.

      Boutique firms tend to discount pay by more than bulge brackets, though there are exceptions.

      1. Brian: got a few questions relating to project finance–

        1) Would most project finance interviews consist modelling tests/case studies? (In North America in general)

        2) When hiring junior bankers (analysts & associates) Do the firms expect you to have sufficient project finance modelling skills or you learn most of those on the job?

        3) Big 4 accounting firms also provide project finance advisory – is it true that their salaries are a lot less than what banks pay?

        1. 1) It’s possible, but more so if you already have some full-time work experience. These days, though, I would be prepared for anything. Any modeling test you get would be fairly simple and they might just ask you something like how to project revenue and expense for an airport or toll road or something in that vein.

          2) They expect you to know some of the basics and the concepts, but would not expect you to know everything in advance. Luckily project finance is not that complicated modeling-wise – it’s actually easier than normal companies since the “statements” are simpler and revenue/expenses are easier to estimate. So most of the difficulties lie in things like waterfall distribution schedules for returns, which they wouldn’t necessarily ask you about anyway.

          3) I’m not sure on that one (anyone else, feel free to confirm / deny), but yes, Big 4 salaries are generally lower than what banks pay for similar roles in other groups. So I would assume the same applies to PF.

          1. Thanks Brian – Do you have a specific guide on project finance interview questions that I could follow?

          2. As of right now, no, but we may add that in the future if there is enough interest.

  14. For how many years of experience does the HF/PE comp refer to?

    1. It is an average of everyone who responded to their survey, so experience ranges from 1-2 years all the way up to 10+ years and beyond. If I had to guess, the average would probably be in the 3-5 year range.

      But it’s difficult because with HFs, pay doesn’t necessarily scale up the longer you’ve worked and it’s more performance-driven. There is a big difference between juniors and Partners, but pay varies widely within those groups.

  15. Good article as always. Any prediction on investment banking deals in upcoming year and hiring trends.

    1. Depends on what the Fed does. If they taper QE and interest rates rise, deal activity will fall.

      As it stands right now, I expect a slight decrease in deal activity but not a giant fall off a cliff necessarily. Hiring will probably be about the same.

  16. Whartonelite

    Elite Boutiques killed it:

    Moelis- $80k top bucket 1st year analyst ($165k all in)

    Guggenheim Securities- $70k top bucket 1st year analyst ($150k all in)

    Centerview- $100k 1st year analyst top bucket ($200k all in)

    Strong Middle markets did similar to BBs:

    HL Corp Fin- $55k top bucket 1st year
    Jefferies- $55k top bucket

    1. Thanks for sharing. The Centerview number seem insane, wow maybe I should quit this business and go apply for a job there (note: this is a joke).

  17. Well, if you survived Operation New BoA (and the toxic morale), you had a nice paycheck…

  18. Did you hear about the BAML intern in London that died? No womder baml paid a lot… hopefully banks would be smarter about getting their workers to pull all nighters…

    1. Of course, a reporter actually contacted me to ask about that.

  19. Great article Brian! Do you have any info on compensation for IB Analysts in China? Are the junior bankers at BBs getting paid the same as their counterparts in US/Europe?

    What about compensation for Chinese Banks in HK? (CITIC,CICC, BOCI etc.)


    1. Depends on the bank… local banks in China will pay way less, but bulge brackets may be about the same or at a slight discount. However, I’m not 100% of those so someone else may want to confirm – this is just based on comments from previous interviewees (

      I am doing an interview with someone in IB in HK/China soon and will ask for more details on this and local vs. global bank pay differences.

      1. Thanks Brian – would be great if you could also inquire how the income tax works in mainland China for expats working there…don’t think anybody wants to pay that close-to-45% income tax (not sure if it’s true)if they were to do banking in Shanghai/Beijing.

        1. That one I can answer: if you’re a US citizen you’re screwed because you’ll pay both US and Chinese taxes (there is an exemption on federal taxes for up to $97.6K of income, but you still owe state taxes on all income and social security/medicare taxes).

          However, foreign income taxes paid to China would reduce your tax liability to the US government because you can count them as a credit or deduction (—Choosing-To-Take-Credit-or-Deduction). So it ends up not being quite that bad, though still more than you’d want.

          For citizens of almost all other countries, you just pay Chinese taxes and nothing in your home country.

  20. Hi Brian,

    I do love your blog but I feel that Obamacare comment might be a reflection of your personal thoughts and views and not really a dent on the financial industry. As per the new health care law: only employers with 50 or more employees are mandated to provide insurance to their employees or else pay a penalty. Knowing that except for maybe a boutique HF/VC/or PE shop there are no firms out there with 50 or less employees working in financial services and most of them are big mega services firm which are already providing health insurance to their employees so the coming of this new law would have no effect (if at all) on their bottom line. So this incumbent threat that you warn of is nothing more than a scare tactic/incorrect stating of facts.

    1. “Knowing that except for maybe a boutique HF/VC/or PE shop there are no firms out there with 50 or less employees working in financial services” –

      1) Actually, the vast majority of IB/PE/HF firms have fewer than 50 employees because most are, in fact, tiny boutiques. We have a set of 20,00 firms and the majority are in that size range.

      2) Yes, technically they don’t have to provide benefits with under 50 employees under the law but no finance firm is going to hire a front-office employee and NOT pay health benefits/other compensation. That is just part of the package regardless of the # of employees or the expense.

      So this leaves them with two choices: pay higher premiums, or drop coverage and let employees buy it on their own (which would cut into their pay because they wouldn’t receive a salary/bonus increase just because of the coverage drop).

      3) And at the bigger firms, due to the requirements of the law, effectively premiums are going up for everyone. There have been tons of stories on this and the per-state increases.

      4) Even putting aside this specific law, it’s hard to argue that rising healthcare costs in general haven’t affected pay across all industries based on the data linked to above.

      As I said, I don’t really want to get into a debate, but this wasn’t just my personal view. Even some of the main supporters of the law such as labor unions have now come out against it or asked for delays.

      So I hear what you’re saying, and as I’ve admitted before, I’m definitely not a fan of this law or of the president. But I based this one on some of the points above and data on what has happened thus far. I will go into more detail if I actually write an article dedicated to the topic.

      It will be good for some people – mostly anyone who cannot afford or does not have access to health insurance right now – but most middle to upper-class people will end up paying more to support that.

      1. You should write an article about it.

        Also, you tend to neglect the fact that insurance companies because of Obamacare can’t deny you insurance based on pre-existing conditions or charge you a premium for pre-existing conditions(except for smoking), which will save those with any disease money in the long run. Since Obamacare will force those who don’t have insurance to buy it cost won’t be carried on to those who do.

        Overall I guess it will be hard to tell what the real affect of Obamacare will be until it takes full affect.

        1. Yup, you’re right, it’s definitely better for some people. But I still think it’s a case of the minority being better off at the expense of the majority. Who knows, though, maybe it will not play out as anyone thinks right now and in 5 years the story will be completely different.

          The findings from the reform in MA do not encourage me too much, though: (And yes, it was different but some of the ideas were similar)

          1. Someone in the Know

            Do people think this money that is paying for pre-existing conditions, greater coverage, essential health benefits, etc. is coming out of thin air?
            Pre-existing conditions is a sensitive issue, and I like the law’s intention towards it. However, arguing that it doesn’t raise premiums universally is economically illogical. The bulk of healthcare inflation (called “trend” in the industry) comes from provider (e.g. doctors/hospitals) costs. Because of the rise in fixed costs required for implementing the state exchanges and conforming to the mandates is falling to the insurance carriers, healthcare costs are being artificially inflated at the carrier level as well.
            The law does a lot of arguably great things (in my opinion) for America’s health in the short-term. The long-term invites many more debates. However, “Patient Protection” & “Affordable Care” are two ends of a seesaw balancing on the same fulcrum.

  21. Some Elite Boutiques are paying higher base and similar bonus

    1. Thanks for adding, that seems to be another trend…

  22. Seared Salmon

    Great as always!

    Although it would be nice to see some London numbers…
    But you’re only human.

    1. Yeah, almost nothing reported on London this year though I think the numbers were similar but in GBP instead (can anyone confirm that?).

  23. Silverback

    Which banks were in the sample?

    1. The medians are primarily for bulge bracket banks. Boutiques and middle-markets seemed to pay less.

Leave a Reply

Your email address will not be published. Required fields are marked *