by Brian DeChesare Comments (12)

Investment Banking Compensation: Salaries, Bonuses, Stubs, and More

Investment Banking Compensation
You might have noticed that I haven’t published investment banker salary and bonus predictions or reports in a few years.

From 2008 through 2016, I wrote a pair of articles all about latest investment banking compensation trends each year in order to answer the popular question, “How Much Does An Investment Banker Earn?”

And then I stopped.

Luckily, banks ignored me and kept paying out healthy bonuses to everyone.

I’ll explain why I stopped publishing these annual reports, but rest assured: this article is about Investment Banking compensation, including the actual numbers as of 2018, so let’s get started:

The First Rule of Investment Banking Compensation: Discount What You Read Online

If you do some Google searches, you’ll find articles that make statements like the following:

“An investment banking analyst should make $155K, $180K, and $205K in years one, two and three (plus or minus $5-10K depending on how good or bad the bank did).”

These reports aren’t necessarily “wrong,” but they are incomplete because:

  • They don’t give a compensation range – and different banks and groups pay different amounts.
  • Bankers are ranked and put into different “buckets,” so your end-of-year bonus will vary based on that.
  • They don’t explain whether these amounts include just your base salary plus end-of-year bonus… or also the signing bonus… or also the stub bonus.

How IB Compensation Works: Base Salaries, End-of-Year Bonuses, Signing Bonuses, Stub Bonuses, and More

For junior bankers (Analysts and Associates), there are five components to compensation:

  • Base Salary – Your most reliable income stream. You earn this regardless of whether you’re a superstar or a complete failure – at least until you get fired. Base salaries are $85K, $90K, and $95K USD for 1st, 2nd, and 3rd Year Analysts at mid-sized and large banks. Some elite boutiques may pay slightly more, while regional boutiques may pay slightly less. Base salaries for Associates go from ~$140K to ~$180K as they move up.
  • End-of-Year Bonus – This is some percentage of your base salary, and it’s based on your ranking “bucket,” overall deal flow, and how much other banks are planning to pay. Some banks pay this bonus to Analysts at the calendar-year end and offer a “stub bonus” after the first 5-6 months, while others pay this bonus in the summer after an entire year of work has ended. Full-year bonuses for Analysts tend to be between 70% and 100% of base salaries, with numbers at or above 100% for the top performers. Expect higher numbers at elite boutiques and lower numbers at regional boutiques. Top Associate bonuses are 100%+ of base salaries.
  • Stub Bonus – New Analysts and Associates start working in the summer. They used to receive their bonuses one year after that, but many banks started to pay bonuses to everyone at the same time, which created a problem: How much of a bonus do they award to bankers who just started working 5-6 months ago? The answer is “not much” because Analyst stub bonuses range between $20K and $30K. Associates earn more than that, but it’s still a low percentage of the Year 1 base salary.
  • Signing Bonus – Compensation reports often ignore this one, but most banks pay new full-time hires a one-time signing bonus as well. The range for Analysts is $5K – $15K, with smaller firms at the low end of the range and elite boutiques at the high end. Associates should receive significantly more (a multiple of these numbers).
  • Benefits – Finally, you receive health insurance, vacation days, and potential participation in the firm’s profit-sharing or 401(k) retirement plans. Many people ignore these points, but receiving solid health insurance from a large company is extremely valuable in the U.S., though it matters less in countries with healthcare systems that actually work (Canada, Australia, Europe, etc.).

Beyond the Analyst and Associate levels, the stub bonus goes away because everyone works on a calendar-year basis from the start.

Base salaries and bonuses increase substantially as you become more senior, but large portions of your bonus will be in stock and deferred compensation – at least if you work at a bulge-bracket bank.

The deferred portions often vest over 3-5 years, so don’t count on being able to access that full $1 million bonus anytime soon.

Finally, bonuses for senior investment bankers are much more closely linked to individual performance, though the “formula” is not always straightforward.

For example, if you generate $10 million in fees for the bank, what percentage of it goes to your bonus? It depends on the bank and deal type.

Salary Numbers for Analysts through Associates, VPs, and MDs

Base salaries for 1st, 2nd, and 3rd Year Analysts at large banks are $85K, $90K, and $95K, with year-end bonuses between 70% and 100% of those numbers (lower percentages in earlier years and higher toward the end).

Average total compensation ranges might be $140K – $160K, $160K – $180K, and $180K – $200K for 1st, 2nd, and 3rd Year Analysts.

These numbers are pre-tax and exclude the stub bonus and signing bonus; add ~$10K if you want to count the signing bonus.

The stub bonus is a negative development because it means you’ll have to wait 1.5 years for the full Year 1 bonus, and you may never see your full Year 2 bonus.

Associates earn base salaries of $140K – $180K, progressing up from Year 1 through Year 4, with bonuses of up to 100%+ of those base salaries.

Total compensation might be in the $250K – $400K range, with a lower number in the first full year ($200K or less) due to the stub bonus.

Vice Presidents through Directors earn base salaries ranging from $200K to $300K, with bonuses worth 120% – 150% of base salaries.

Total compensation ranges from ~$450K up to ~$700K.

Managing Directors earn base salaries of $400K – $600K, with highly variable bonuses that might be almost nothing or millions of dollars.

Average total compensation is in the high-six-figure-to-low-seven-figure range; an MD doing decently at a large firm should earn at least $1 million per year.

Again, cash compensation will be far lower at bulge-bracket banks because of the bonus deferral, which is one reason why elite boutiques have been on a recruiting tear.

Salaries In Other Groups, Countries, and Cities

Compensation does not vary much between different groups at the Analyst level.

Even if your group’s deal flow is poor, you’re not going to earn much less than Analysts in other groups because it’s not your responsibility to close deals.

Compensation starts to vary more as you move up, and it’s a bit lower in capital markets groups such as ECM than in industry or M&A groups.

After New York, the biggest market for investment banking is London, and Arkesden publishes helpful compensation reports there.

Standard base salaries for Analysts are £50K, £55K, and £60K for 1st, 2nd, and 3rd Year Analysts; average bonuses are £30 – £35K, £35 – £40K, and £40 – £50K.

At a 1.40x GBP/USD exchange rate, those numbers equate to lower compensation than in the U.S.: $115K through $150K rather than $140K through $200K.

That’s so much lower that I almost doubt the numbers; Is Brexit to blame? Or is it the bonus:salary cap? I don’t know.

Associates in London earn base salaries of £80K – £120K, while VPs earn base salaries of £140K – £160K.

Total compensation ranges from £120K through £220K for Associates and £250K through £350K for VPs (also significant discounts to U.S. pay).

No, I don’t have the specific salary numbers or any sources for Canada, continental European countries, Australia, Hong Kong, China, Westeros, Wakanda, etc., but feel free to contribute if you do.

I’m not going to delve into private equity or hedge fund compensation here because it’s less standardized, we’ve covered the basics previously, and SumZero produces a good report each year.

Why Does This Matter?

It’s always fun to look at compensation figures, see what everyone else is earning, and then calculate your effective hourly rate while binge-drinking (my favorite tipple is Laphroaig, but it’s an acquired taste).

But I’m sharing these numbers and explanations to make a few other points as well:

Point #1: You Will Not Save Much Money from Your Base Salary Early in Your Career

An $85K base salary is about $7,000 per month. After taxes in NYC, it’s about $4,900 per month.

You’ll spend at least $2,000 per month on a small apartment, and more likely $2,500+.

So, now you’re down to $2,400 – $2,900 per month.

Then there are student loan payments, meals, transportation, going out occasionally to preserve your sanity, and so on.

Even if you live very frugally, you’re unlikely to save more than $2,000 per month, and you might save as little as $1,000.

Saving $12K to $24K per year is pretty good for a recent graduate, but it won’t make you wealthy anytime soon, and it’s very low compared to your after-tax bonus.

That’s why it’s so important to earn a high year-end bonus, avoid “investing” your entire bonus in Bitcoin, and then to keep moving up, go to the buy-side, or start a business if your end goal is to become financially independent.

Point #2: Investment Banking is Not a “Get Rich Quick” Scheme – It’s All About the Long Game

Let’s assume that you need $10 million to feel comfortable with an “early retirement.”

Let’s also be generous and say that you’ll save 40% of your pre-tax earnings each year (deduct 50% for taxes and 10% for other expenses) and that you’ll need 10 years to reach the MD level. You will also earn toward the top-end of the total compensation range each year.

After 10 years, that amounts to about $1.4 million in savings.

If the markets have performed well, and you’ve invested everything you’ve saved, perhaps you’ll have ~$3 million.

That’s a good sum of money, but it’s not enough to retire at age 30-35 in New York City.

Once you become an MD, you might be able to earn $1 million per year and save half of it; that’s $5 million after another 10 years.

Yes, maybe you could move up more quickly, earn more than $1 million, or do incredibly well with your investments.

But the basic point remains the same: You’re looking at retirement in your 40s, at least if you want to keep living in an expensive city.

Most people would call that a good outcome, but it’s still far from “get rich quick.”

If you want to get rich more quickly, you have to start a business, become a successful investor, move up rapidly in a buy-side role, or use time travel to join Facebook in 2004.

Point #3: If You Want to Make Money Much More Easily, Go into the Tech Industry

As finance pay has fallen, pay at tech companies, especially for engineers, has risen.

You’ll still earn more in cash compensation as an Analyst in IB than you would as an entry-level engineer at most tech companies, but the difference is quite small. And once you factor in stock, all bets are off.

Just as one example, take a look at this report, which pegs the average base salary for engineers at Google at $142K; with stock and the annual bonus, total compensation is $203K.

The numbers at Facebook are even higher – $153K base and $225K total.

And you earn those amounts with far less work: normal, 40-50-hour weeks rather than 70-80-hour ones.

Admittedly, smaller tech companies pay below those numbers, progression up the ladder is slower, and the pay ceiling is lower unless you move into an executive role, so there are some disadvantages as well.

But as I’ve been saying for several years, if you want a comfortable lifestyle where you earn in the low-to-mid six figures and have free time, join a large tech company.

So, What About Those Annual Bonus Predictions and Reports?

Now, back to that point I made in the beginning.

I stopped writing annual bonus predictions and reports because they stopped being useful – there was no longer one standard bonus, banks started paying bonuses at different times, and pay between banks began to vary.

Also, my strategy of using the bank’s IB revenue growth rate to determine the bonus growth rate became less predictive over time.

Finally, quite honestly, I lost interest in this topic.

I’ve now been out of the industry for almost a decade, and it’s hard to care about bonus numbers when they barely affect me.

I have received many requests for compensation summaries, though, so I plan to consolidate everything in this article and update it periodically.

That could last for a long time, even if the annual articles go the way of pre-financial-crisis bonuses.

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. Michael Pedneault

    Your salary figures for all levels seem to be between two and three times the reality. According to Glassdoor or Indeed, which have hundreds of reported salaries, the truth is more like :

    Senior Vice President salaries – 210 salaries reported – $159,212/yr
    Investment Banking Analyst salaries – 169 salaries reported – $76,061/yr
    Director salaries – 168 salaries reported – $204,100/yr
    Associate salaries – 168 salaries reported – $115,454/yr

    1. Nope. Normally I would not even reply to a comment like this, but others might be confused about the Glassdoor figures as well, so here goes:

      1) The Glassdoor figures are *base salaries.* A huge component of your compensation in investment banking is the year-end bonus, which those figures do not include.

      Let’s do a quick comparison between those figures and the base salaries reported in this article:

      a) Analysts – $85K-$95K vs. $76K
      b) Associates – $140K-$185K vs. $115K
      c) SVPs – $200K vs. $159K
      d) Directors – $300K vs. $204K

      Even if you take those numbers at face value, they are clearly not “between two and three times the reality.” Our *base salary* figures are higher than theirs for fairly simple reasons described in points #2 and #3 below:

      2) The Glassdoor figures represent data collected from *all* banks, even tiny, 2-person boutique shops. Salaries and bonuses are almost always far lower at those firms for obvious reasons (size matters).

      By contrast, our pay figures represent what you might earn at mid-sized (middle-market) to large (bulge-bracket) and elite-boutique banks. Most readers of this site will end up working at one of those, and the base salaries and bonuses tend to be higher.

      3) The Glassdoor figures are on a trailing basis, i.e. they reflect older data points from before salaries increased. For example, for a long time, IB Analysts earned $60K, $70K, and then $80K… but then banks bumped up salaries by $10K, and then they increased base salaries again.

      Associate salaries have also been bumped over time. A long time ago, base salaries did start at $100K there, but that has increased over the years. Without knowing the dates for all of Glassdoor’s data points, it’s impossible to say how much their data reflects the environment in 2018.

      4) Finally, check some other sources that do real industry surveys instead of just asking random people online… they’ll all be close to the numbers here: (Page 10)

  2. Brian,
    I disagree with your assertion that tech companies are the way to go for easy money. The HR director for google, Lazlo block, published a report which indicated that google has only a 0.2% acceptance rate for jobs. For comparison, Goldman-Sachs claims that they have a roughly 3% acceptance rate for jobs. This makes Goldman-Sachs approximately 15 times less selective than google. Furthermore, at a tech company, for companies like google and facebook, you are expected to walk into the interview with years of technical experience and knowledge on the spot, rather than learning it on the job. Google would expect to to be one of the most capable software engineers on earth to justify this salary. The statistic for the average base pay is skewed higher than it would actually be for fresh college graduates because there are many old and experienced engineers at google. As an analyst, you are likely extremely young and fresh out of college, but as an engineer, you could just as well be 22 as 42. This is why I believe that tech companies are not an easier way to make money. Otherwise, thank you for the insightful article.

    1. I don’t like debating people online, but since I’m procrastinating on something else, I’ll respond:

      1) You have to compare similar types of jobs. Is that 0.2% acceptance rate for all jobs? Just entry-level software engineering ones? All software engineering ones? And then is the Goldman Sachs 3% acceptance rate for all jobs? Just investment banking? Front/mid/back office? The acceptance rate will obviously be higher if you include front, mid, and back-office roles in addition to front-office IB ones, which are the most competitive.

      Companies like to spin their numbers to make themselves sound more elite, so you should take them with a grain of salt. If you have externally gathered numbers for the acceptance rate in entry-level PM and engineering roles at large tech companies vs. front-office investment banking jobs at the large banks, I’ll believe those.

      2) You have to compare the options for similar types of candidates. Most of readers of this site attend relatively-good-to-top universities and, therefore, have a lot of options. A science or engineering student at a top 10 university in the U.S. could easily work at Google or Facebook or at a large bank if they prepare far enough in advance. Plenty of classmates at Stanford who were not-so-competent found positions at those companies, and that’s when the companies were smaller and more selective.

      “One of the most capable software engineers on earth?” I know a lot of people who worked at those companies, and very few fell into that category. Capable, yes, but not genius-level.

      3) Entry-level compensation for engineers at these companies is well-known. Yes, entry-level pay may be lower than the averages above, but the point is that the gap between finance pay and tech pay has shrunk over time. It’s hard to justify working twice as many hours in finance unless there’s a big pay bump.

      So… point taken. It’s certainly not “easy” to get into the big tech companies. But for good students at the upper-ranked universities, tech presents a better lifestyle, higher $ per hour in entry-level roles, and a better culture. The pay ceiling is lower, sure, but most people quit finance before they even reach the ceiling.

  3. Numbers in the UK looks right. Not due to brexit or anything like it, this is just the case.

    But you can also add that in the UK people have 25 days of holidays + more bank Holidays + relatively cheaper cost of living.

    1. Thanks for adding that. Who needs vacation, though? This is finance. Work until you die! (sarcasm)

  4. How are numbers looking in the public finance group of a BB?

    1. I have never found good/reliable numbers for public finance teams, unfortunately. I would imagine that bonuses are a bit lower at the Analyst level and significantly lower for more senior staff due to the nature of the work and inability to charge high fees.

  5. London’s discount appears to be so large now as there was a 1.60x GBP/US only a couple of years ago pre-referendum

    1. Yup, that is true. Though even at that higher exchange rate, it’s still a discount to U.S. pay.

  6. Hortensius

    Analysts in Australia get something like the below (although there is material variance between banks):

    in AUD:
    1st year is $100-120k base plus $40-70k bonus;
    2nd year is $120-140k base plus $70-90k bonus;
    3rd year is $140-160k base plus $90-110k bonus

    Big step up for associates after that but also a huge amount of variance between banks (only 2 banks in Aus are genuinely profitable, Mac and UBS)

    A$ is currently around 0.77US$

    1. Awesome! Thanks for sharing. Interesting that there seems to be less of a discount to U.S. compensation than in London…

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