Investment Banking Job Pay Heads Downward

It has been two years since the financial crisis put a major crimp in hiring and salaries. But it appears the downward pressure on investment banking job compensation is here to stay, at least for a while, reports the Wall Street Journal.

According to the “Wall Street paymaster” interviewed for the article, an executive inside a major investment bank who oversees salary and bonuses, the real numbers are indeed falling.

In the pre-crisis days, median pay for mid-career bankers was roughly $2.2 million a year, of which $200,000 was in base pay with the remaining $2 million as an annual bonus, including 60 percent in cash. That averaged about $1.4 million before taxes, resulting in an after-tax take-home pay of $700,000 a year.

Today, however, this Wall Street insider claims the median pay is more in the neighborhood of $1.6 million. Base pay has shifted higher due to public pressure against encouraging bankers to take excessive risks, and now sits at around $400,000. But now 60 to 70 percent of the bonus portion comes as deferred compensation, mostly as company stock. And by the way, this deferred stock can disappear if you switch jobs.

Net result?  A banker isn’t pulling in nearly as much cash in his or her first year of employment in a mid-level job. Only about $380,000 after tax. Better than a plumber or electrician (most, anyway). But quite a bit less than investment bankers were accustomed to living on before.

What this means is that bankers today may be looking at working later into their careers before even thinking about retiring. Nor can they necessarily look for a big, cash-cow year to bump up their nest egg. According to the Journal article, with tighter rules on using leverage and higher reserve restrictions on banks, the big investment banks just aren’t making as much money as before. And that’s hitting salaries overall.

In fact, according to the source quoted in the article, today, a $5 million compensation package puts you in the top 10 percent of investment banking job earners.

What’s your opinion? Have you seen downward pressure on the compensation packages at your firm? Overall? Add your comments below.

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