A 15-year veteran of investment banking gives the scoop on two key aspects of the game: the salaries and bonuses enjoyed by investment bankers, and how the industry continues to be fuelled by bonus culture, 12 years after the financial crash.
A love of money is important in the industry. It is why bankers stay working as long as they do. It is why university graduates are still lured in. And it’s ultimately why bankers are still the scorn of the general public.
Every action of a client-facing banker is driven by the magical carrot of a bonus, dangling at the end of the year. More deals mean more fees. More fees mean more revenue for the bank. And more revenue means a bigger bonus.
In the early 2000s, a bonus of 100% of your salary was probably the baseline. As you made your way up the ladder, 200%-400% of your salary was what you aspired for. A total package for a debt capital markets (DCM) vice president or a director (which is a rung in investment banking) in the early 2000s could comfortably have been in the £200-300k range, with a £50-75k base. And then potential uplift from there for ‘good years’.
The financial crisis of 2008 complicated this, of course. The negative press and subsequent wrath of the general public meant financial institutions had to feed bankers their bonuses more discreetly, through stock or deferred components.
Although bankers tend not to speak about their personal pay packages, you can pick up a general picture through talking to other bankers about their institutions. Pay structures now have vesting schedules and deferred payments. Structures also vary across us, European and Asian banks, with the American banks pretty much returning to pre- crisis levels.
The American banks pay your average DCM banker $600-750k in a total package. The UK and European banks range between £200k and £400k, with around 25% deferred over three years and the remaining 25% in shares that would also vest over a three-year schedule. Mergers and acquisitions (M&A) specialists, as well as coverage bankers often make more, subject to ultimate deal revenues and the state of the broader M&A market. Needless to say, it is never enough.
It will be interesting to see how the world of investment banking copes with coronavirus and its ensuing corporate fallout. An industry that relies on communication, travel, interactions and deal flow may struggle to sustain itself and pay out bonuses that keeps the machine moving.
