The investment banking compensation model is broken, and it’s going to take both PR efforts and structural changes to fix it. That’s according to Steven M. Davidoff, a former corporate attorney and now a professor at the University of Connecticut School of Law, who outlined both problems and a possible solution in a recent article in the New York Time’s Dealbook blog.
Rightly or wrongly, many Americans blame the banks for the recent financial crisis. And when millions of people are losing jobs that pay far less than the $400,000 base salary of a senior banker, there is little sympathy for executive compensation. Hence the fertile political climate in Washington for salary and bonus caps.
Davidoff says Wall Streeters may be aware of the attitudes on Main Street, but still not taking them as seriously as they should. Hence the major PR missteps of $35,000 office commodes and last-minute bonus packages. The criticism is only going to get worse, he says, if Wall Street doesn’t play the public relations game better.
An even bigger problem for investment banks is having them consolidated into the “financial behemoths” of recent years. This weakens overall employee loyalty and makes global risk monitoring that much more difficult.
The solution, he says, is to return to a compensation structure that will pay well in good times yet tie employees to the firm in bad times. Perhaps a return to the time when many Wall Street investment banks were partnerships, and senior executives had a personal stake, and capital, locked into their enterprise. This structure means each partner has a role in monitoring risk, along with the pride of being a partner. It’s no surprise, Davidoff says, that the two surviving independent investment banks are Morgan Stanley and Goldman Sachs, two firms that have preserved the partnership culture.
The Wall Street Journal recently asked several top career consultants to weigh in on the value of online job search websites. This was prompted by the three of the giant boards, including CareerBuilder and Monster, running hugely expensive TV commercials during the recent Super Bowl telecast. Are job sites worth it, they asked.
The experts were in agreement that the big, popular sites may do a fair job for young, entry-level job hunters. But for more experienced professionals, and highly targeted market niches, they often come up short.
For example, many online job boards are filled with low-level or administrative job listings that don’t relate to your particular qualifications. You can end up wasting hours of time sifting through the site to come up with just a few worthwhile opportunities.
Instead, you should find an online service that focuses on your particular niche. This service should do all the research for you, and filter out jobs that are not truly for serious financial professionals. It should only list (or better yet, email you) the most relevant job listings. Also it should make sure that each investment banking job listing provides clear information as to who you should contact to apply for the job.
Without the lure of huge bonuses for themselves or mega-financing for their clients, many seasoned bankers are moving to smaller firms that value the advisory side of the business, according to Money online.
Smaller banks such as Greenhill, which was involved on the $43 billion Roche-Genetech deal last July, have hired ex-Lehman bankers and launched two new offices. Same for Evercore, which recently hired up to 20 former Lehman, J.P. Morgan and Merrill Lynch bankers to staff its London office.
It seems smaller, independent banks are gaining ground, particularly in the mid-market. Yet even some of the recent mega-deals, such as Warren Buffet’s purchase of 3% of Swiss Re had independents attached.
One reason for their success, claims an industry veteran, is a return to a more personal approach to banking that had fallen by the wayside during the years when the big bulge-bracket megabanks who arranged the financing called the shots.
In today’s environment, with more strategic deals where one company is buying to grow its business, bankers who care more about the long-term quality of the advice they give may come out on top.