investment banks raising starting salaries, but…

The financial media are helping get the word out that the major investment banks will be raising starting salaries for new professional employees by 20% – 25%.

Wow, sounds great!

What isn’t being so loudly trumpeted is that total compensation isn’t changing.  Brokers are just altering the mix of salary and bonus they’re offering.

My thoughts:

–this “increase” is mostly optics.  After all, in a zero interest rate world, there’s virtually no present value difference between money received in January and money received in December.  Personally, I’d be annoyed if an employer told me my great new benefit would be a smaller chance to get a large bonus based on superior performance.

–the main reason for the move looks to me to be competition for talent from tech start-ups, which will offer lower salary + a wad of stock options (which will have a much longer-term possible payoff, and which may ultimately turn out to be worth zero).

–this may be a signal that the big investment banks are also seeking a less swashbuckling, more conservative culture.  Given that the cocktail of lots of swash, a criminal bent and limited mental wattage throughout the firms produced a huge industry black eye and gigantic fines, it makes sense that the industry might want a different class of employee.

–the new compensation package is less risky to the employee–there’s less chance that the yearend payout will be unexpectedly small for non-performance reasons like an industry downturn or an unfavorable roll of the office politics dice.

This can be the start of a slippery slope, however.

Yes, I can see that I’m better off with salary of $85,000 + bonus of $40,000 than with $70,000/$55,000, because there’s more “guaranteed” money.  But  the same logic can be used to justify an overall lowering of compensation.  Am I really  better off with salary of $110,000 and no bonus?  My answer would be ‘No!”  But a lot depends on the individual’s risk tolerances–and on the culture the firm wants to establish plus the skills it wishes employees to have.

It certainly does say something, though, when a firm is selling risk reduction as one of its main compensation attributes.



Leave a Reply

%d bloggers like this: