Is There a “Best” Banking Career Path?

You’ve heard the expression, “a great place to visit, but I wouldn’t want to live there.” In the course of your career — any career — there’s always that one enterprise where people get their start, build their reputation, then can’t wait to move on because they’re worked like an Alaskan anvil salesman’s sled dogs. That’s why today it’s more prestigious to say, “I started at Goldman Sachs” than “I work at Goldman Sachs.”

According to a recent paper published in the Strategic Management Journal, firms have a major human resources issue to contend with, and it goes well beyond “good help is hard to find.” Good help is actually pretty easy to find but it’s hard to keep. Once you’ve found employees who are worth hiring, and you trained them up and introduced them around, it’ll soon become hard to figure out who’s the boss. Those engaged in investment banking careers know how to recognize value of any asset or operation, so nobody should be surprised that they can figure out, practically to the dollar, how much they’re worth to their firm. Once they’ve figured that out, they can negotiate to recoup all that value they bring. Otherwise, they can take their talents elsewhere or even go into business for themselves.

The takeaway from this study, according to the eFinancial Careers web site, is that newly minted investment banking associates are best served by a short, immediate tenure at a big, prestigious bank, even if they have no expectation of staying on. Regardless of where they are in five years, “Bankers who spent the first few years of their careers at high status firms can earn around 15% more by the time they reach the VP level.”

Academia calls that value which affiliation with the firm presents to the employee “rents.” It’s the money you leave on the table by being employed by somebody else. The SMJ researchers, led by Matthew Bidwell of the Wharton School at the University of Pennsylvania, demonstrate how such rents are easier for high-status firms to collect on their most junior employees. That’s what you’d expect. But what Bidwell, et. al., suggest is that “firms will only [our emphasis] be able to benefit from their status early in workers’ careers, before workers have established their ability to be successful in those firms and have therefore become attractive to other employers.” That is, the only time an employee is going to be worth more than what you’re paying them is when they’re right out of school.

Sure, there’s lots that firms can do in a non-monetary fashion to retain workers: good job design, work-life balance, a path to a more highly-esteemed title – none of which are reasons to go into investment banking. Ultimately, the only way for firms to keep collecting those rents is if there are some kind of barriers between firms competing for the same talent pool. But, since one investment bank is much like another in many respects, that’s likely not going to happen.

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