An MBA from a big-name university used to be the ticket to a Wall Street investment banking job and a six-figure salary. That path is a bit bumpier now with the demise of many Wall Street giants. So this spring’s fresh crop of MBA grads are setting their sights on other opportunities in finance, according to the Boston Globe.
Some are shifting their job-hunting activities to consulting firms, or focusing on emerging high-growth fields such as energy and clean tech, boutique investment banking firms or exploring jobs in private equity.
The recent meltdown has prompted some students to re-examine their overall values, as well. Instead of making a beeline to a big pay package, as before, many are thinking of how and where their skills and talent can make an impact on society. The migration to clean energy and new green ventures, for example, is supported by an idealistic desire in some students to help the country wean itself from a dependence on foreign energy. In addition, many believe energy may be the next frontier that will fuel a future economic boom in the U.S., much like the financial sector did for the past 10 years.
Bonuses have been a part of investment banking compensation for decades, since the time when most investment bankers worked for small, private partnerships who couldn’t afford big salaries but could reward performance in banner years. That could all change given the mood in Washington and on Main Street, and even some senior bankers feel it might not be a bad thing.
The public outrage at AIG bonuses has prompted Congress to impose a 90 percent tax on bonuses paid to banks that receive more than $5 billion in TARP money. Yet even Ken Lewis, Chief Executive at Bank of America, expects that banks will shift their pay structure further away from big bonuses. The current pay structure encourages “behavior that was not appropriate,” said Lewis in an interview with the Charlotte Observer.
In a good economy, bankers view their bonuses as an entitlement, instead of a reward for performance. It’s also an incentive to “bet big” without fear of personal consequences. “If you win, you make millions. If you lose, there’s always next year, or there’s always another job, and by the way, the new job probably comes with a six-figure sign-on bonus,” says Laura Hanf, vice president of Pearl Meyer & Partners, a compensation consulting firm in Charlotte.
Bonuses are unlikely to go away completely, of course. But the balance between salary and bonus may approach parity. Banks could start paying more of their bonuses in a combination of stock and cash, as well, to encourage workers to take more of a long-term interest in the success of the company and to manage risk better.
Boutique investment firms and top hedge funds around the world are snapping up top investment bankers who have been let go or had their bonuses cut at big banks.
Reuters reports that many of these smaller firms still have substantial assets under management. They are looking to pick up rainmakers from bulge bracket firms, particularly in trading and sales. The article mentions that Singapore’s largest hedge fund, Artradis, has hired a high-profile risk trader from RBS along with a New York-based Credit Suisse executive. Investment advisory firm Fox-Pitt Kelton recently picked up five people from banks such as Merrill Lynch and HSBC to focus on Asia.
“It’s possible for boutiques to actually hire top talent, which was almost impossible for them while the market was going ballistic from 2005 to the middle of last year,” said Thomas Hester, head of equity at Fox-Pitt Kelton.
Many boutique banks have been able to weather the current crisis better than their bulge-bracket brethren. They have attracted new clients looking for independent advice, and many of the firms have avoided the kind of big, leveraged bets on risky credit products that brought down the bigger banks.
The rise of the boutiques has also served to diversify investment banking to smaller financial centers around the world, including Mumbia, India.
