How Investment Banking Analysts Get Ranked for Bonuses: Roll the Dice, Please
One question that comes up whenever banks announce bonuses is how you get ranked in the first place.
Sure, we all want to be “Top Tier,” but how do you actually get there?
There must be a complex “ranking” process at banks to ensure high standards for everyone…. right?
Nope. It’s actually more like spinning the roulette wheel – or rolling the dice.
Red or Black?
Ok, it’s less “random” than roulette – but there’s also less skill than poker.
And it’s far more random than how summer analysts get offers.
At most banks, the “review” and “tier assignment” process goes something like this:
1. Several months before bonuses are awarded, people who have worked with you will “review” you – sometimes you see these reviews, and sometimes you don’t.
2. Then the MDs go off to New York (or London if you’re at Barclays…) and meet with other MDs to “fight” for how much of the bonus pool gets allocated to their groups.
This doesn’t affect Analysts too much – Analyst “tiers” are usually the same across different groups at a bank.
For anyone more senior, the amounts vary quite a bit depending on how many deals your group closed and how much you contributed personally.
3. Then, back at your own office the MDs discuss internally how they want to “rank” each Analyst, sometimes involving the VPs or whoever else worked closely with you.
Other than step #2, you might think this sounds similar to the summer intern offer process – but there’s one big difference:
Summer interns are awarded offers based on 2-3 months of performance, whereas full-time Analysts are split into bonus tiers based on 12 months of performance.
More often than not, this leads to strange and random things happening.
The finance industry as a whole – and investment banking in particular – has an extremely high turnover rate. Friends have moved to 3 different firms within the span of 1 year (admittedly, this was when the market was better).
If you’re a summer intern and you get to know 1 VP or Associate really well, he’s unlikely to leave in the span of 8-10 weeks – but switching firms, getting laid off, or leaving the industry altogether in the course of a year are all common.
Another friend spent 75% of his time working with 1 VP in his group, and then had the VP leave 2 months before bonuses were announced – you can bet that his bank account was not too happy.
Theoretically, Analysts are divided into tiers based on their “performance” – how well they did their work.
But it’s not quite that simple:
You don’t benefit much from being a “star,” but you can get screwed if you make the wrong mistakes in front of the wrong people, especially if it’s close to bonus season.
It’s impossible to do anything to “boost revenue,” but there are plenty of ways your mistakes could cost your bank money – so there is a strong bias against mistakes rather than going the extra mile.
And even though you’re being judged over the course of a year, most people forget what happens in the middle and only remember the beginning and the end – so it’s not the “weighted average” of your work.
So, What Can You Do?
If the ranking process is so random, what can you do to improve your chances of getting a decent bonus?
Beginning and End Bias & First Impressions
As mentioned above, the beginning and the end – roughly the first and last month – of your time as an Analyst are more important than anything else.
No matter what you do, you’re going to make mistakes when you first start – the key is to recover rapidly and show that you learned your lesson before you make another silly mistake.
And don’t be like one former colleague of mine who kept asking for “cross-border China deals” in his first week at work (unless you want bottom-tier bonus, like he got).
Be doubly cautious in the beginning and quadruple check anything before showing it to a senior banker – and get a 2nd year Analyst to look at it. No matter how much you think you know, every bank does things differently.
The same advice applies to your final months before bonus season: check everything more than you usually would, print it out, and make sure you don’t miss any meetings because you “overslept.”
Spreading Your Net
You need to get to know lots of different people as an insurance policy – just in case your staunchest advocate leaves or gets laid off midway through the year.
Summer interns are fine getting to know just their team and making a good impression on them, but you need to be more thorough if you’re a full-timer.
The easiest way to do this: get introductions from other full-time Analysts who know different people in your office, and take it from there.
Don’t bother getting to know people from different offices, unless you’re interested in moving elsewhere – they don’t weigh in on your bonus at all.
Stop Thinking About the Number
One final tip: stop thinking about your bonus number. Yes, if you do a better job than someone else you might get $5-$10K more, but that is not much over an entire year.
You should be more concerned with the quality of your recommendations, both for the buy-side and for business school – because those will actually make a big difference in the long-run.
Not all banks have a tradition of “recommending” Analysts to different funds, but most of the larger ones certainly do – they know that very few people stay beyond 2 years.
So you should spend most of your time thinking about that, and how to get the MDs with the most connections to “go to bat” for you and make the recommendation that gets you that interview at Blackstone.
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