When it comes to salaries, there’s no denying that investment banking sits right near the top. There’s a reason why so many younger workers are willing to put up with arduous hours and relentless competition. Compensation, in the form of salaries and bonuses, is a powerful magnet for the industry.
Yet, like in any other field, salaries in investment banking aren’t static. They fluctuate as a result of the same market and labor pressures that exist in virtually every industry.
All of that raises the question: What are the current compensation trends in investment banking today? Are salaries up, down or flat? And what’s causing compensation to fluctuate?
Let’s take a look.
The state of investment banking salaries
In the United States, low wage growth has been the general trend for years. According to the Wall Street Journal, U.S. firms plan a median wage increase of three-percent in 2017 — the same increase that’s been seen for the previous six years running. While that may be just enough to keep up with inflation, how does the broader data square with what’s happening in investment banking?
The most recent data that’s been released comes from Johnson Associates, a consulting firm that crunched early 2016 numbers to make projections about the rest of 2016. The report, which was released three months ago, won’t cheer senior bankers.
According to Johnson Associates, investment bankers can expect total bonus reductions of anywhere from five to 20-percent this year. Johnson cites market volatility, interest rates and uncertainty associated with the U.S. election as drags on banker compensation.
Those figures are in line with what’s already been reported in 2016. Bonuses for senior bankers have been flat or down, while salaries for junior bankers have seen some slight increases. Ongoing competition to attract the most talented young associates has led to rising junior salaries.
A combination of slightly bumped up salaries and considerably slashed bonuses is a mixed bag — at best. Yet aspiring investment bankers should not take the prospect of reduced incentive compensation too hard; overall, investment banking salaries remain quite high.
According to data gathered by employment portal Glassdoor.com, entry level analysts at Morgan Stanley, Goldman Sachs and J.P. Morgan all still earn base salaries in excess of $80,000 annually. Associates at the three banks average from $110,000 to $130,000, with maximum salaries topping $200,000.
Even in an environment featuring depressed incentive compensation, such salaries are still more than palatable when combined with sizeable bonuses. It also should be noted that bankers seeking to earn more money may wish to consider opting for boutique over bulge bracket. Recent history has shown that top performing associates at boutiques are bringing in richer bonuses than their large bank counterparts.
Why? Blue chip banks can afford to pay less because of the prestige factor. Additionally, moving up at a large, prestigious, organizationally top heavy bank can be slow going. Bankers seeking an accelerated career path — and more generous compensation — may find life at a boutique more to their liking. Another benefit: boutiques often pay their bonuses in cash, rather than deferred compensation or stock options.
Either way, nobody is going to weep for investment bankers soon in terms of salary or bonuses.
If you’re an aspiring investment banker curious about near-term compensation prospects, the most recent data offers a mixed report. While you might earn a slightly larger salary as an entry-level employee, incentive compensation may be down significantly this year — and, unless there are some broader market and political shifts — next year as well.
Still, you can console yourself with the knowledge that investment banking remains one of the most financially rewarding career paths available.