Why Investment Banking Jobs Pay So Much

In a sharp rebuttal to the populist outrage against investment bankers, John Tamny, a weekly columnist for Forbes, writes that pay is high in finance because, like it or not, they deserve it.

Aspiring traders and investment bankers toil for years in university, and often in grad school as well, earning MBAs, before struggling to land a lucrative entry-level position. It isn’t exactly easy street after that, either.

It’s a rare person who can land that investment banking ┬ájob and hang onto it long-term, Tamny says. Very few people have the numerical skills to put together M&A trades, or the stomach for the volatile nature of the business, where one mistake can have you booted out the door. Fewer still are able to handle the extreme hours and competition.

On top of it all, Wall Street’s detractors miss the point: compensation and bonuses are high because of the enormous value that investment bankers often bring to their clients. Clients pay large fees because they value the advice and strategies. Nobody is holding a gun to their head.

The same holds true for traders. The successful traders we hear about earning mega-bonuses earn them because they generate enormous profits that enrich their employers far beyond what they receive in terms of compensation. And, as Tamny points out, since many Wall Street firms are publicly owned, they have shareholders who willingly agree to these compensation practices, without any form of coercion.

Taxpayer-funded bailouts of the big banks may have been a bad idea. But complaining about paying people the going market rate in return for their contributions, is not, Tamny says. Although on the flip side, these firms should also be free to fail if their compensation practices sink their business.

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