From the monthly archives:

January 2010

As major banks get set to hand over billions of dollars in bonuses to employees, despite much public indignation, the Times Online UK examined whether these types of incentives really do what they’re supposed to: namely, prevent top employees from leaving.

The article quotes Geraint Anderson, the author of Cityboy: Beer and Loathing in the Square Mile, and a former utilities research analyst at Dresdner Kleinwort, offering the traditional viewpoint: “The simple fact is, you go into the City to make money. Firms are hiring at the moment and staff will leave if they are not given bonuses. The banks will show staff no loyalty in bad times, so why should staff be loyal in return?”

However a new book by Boris Groysberg, an associate professor in organizational behavior at Harvard Business School, suggests otherwise.

Groysberg analyzed 1,000 “star” analysts at 78 investment banks, along with 20,000 non-star analysts at 400 firms. His surprising conclusion: “Exceptional performance is far less portable than is widely believed. We found that mobile stars [bankers who leave one company for another] experienced an immediate degradation in performance that persisted for at least five years. Thus their exceptional performance at their prior employer appears to have been more firm-specific than is generally appreciated … Banks behave as if stars deserve and should appropriate all the value they generate, but stars without the companies they work for might not be stars.”

Jeremy Batstone-Carr, the head of private client research at Charles Stanley stockbrokers, goes a step further. He suggests that bonuses ” are paid out not when a company is doing well but when it looks as if a company is doing well; they reward short-term performance; they reward people who are just lucky to be in the right place at the right time; the “performance” element of a performance-related bonus is entirely subjective; bonuses cease to be effective after a while because people come to expect them, like a salary.”

Nevertheless, bonuses are not likely to disappear from the banking industry anytime soon. Not because they’re deserved, but because bankers, even if they secretly admit they are grossly overpaid, understand that if they don’t grab their share, somebody else will.

As a friend of the article’s author notes, “With only a very few, seriously deluded, exceptions, no one believed that we were worth the equivalent of 100 teachers or 50 doctors … We all knew it was absurd … but if we didn’t take as much of the cake as possible, someone else would. It all came down to the size of the bonus pool.”

{ Comments on this entry are closed }

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  job 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.

{ Comments on this entry are closed }

BNET has an amusing and useful article about how even a stellar candidate can “flunk” an interview by overlooking hidden traps. These days, when you’re likely to be competing for an investment banking job against many others with years of experience that are similar to yours, it’s worth paying attention to the details. For example:

Never drop your guard in front of “the help.” Always treat receptionists, secretaries and other admin workers with the utmost courtesy and respect. Not surprisingly, interviewers often check with their staff about how a candidate behaves prior to the interview. On candidate, a “Mr. X”, cruised through his interview but had gone into a lengthy tirade beforehand in front of the receptionist about the lack of parking spaces available for visitors. His lack of control when he thought he wasn’t being judged set off warning signals when the interviewer heard about it.

Other no-nos: never denigrate a particular job you’re applying for. You may feel it’s beneath your talents and experience, but your goal is to get the job offer first, then have the choice of turning it down. Criticizing or commenting on the job description during the interview takes you immediately out of the running, and wastes both your time and the interviewer’s.

And these days with social networking playing a bigger role in job hunting, it pays to treat these informal networks in a professional manner. Many job leads have hit the wall when a candidate uses sloppy language, poor spelling, or has typos in their online messages. You have to be professional in every communication that relates to a prospective job, because these messages will be judged as carefully as your cover letter and resume.

Check out the BNET article for more ways to annoy an interviewer.

{ Comments on this entry are closed }

Investment Banking Job Interview Question: Lights Out!

January 11, 2010

We were talking to Charlie Panoff from Objective Solutions International about job interviews and he asked us this question – and, for the record, no we did not get it right. Hopefully, you’ll be better prepared and when asked this one, a light bulb will go on for you. Q: A windowless room contains three […]

Read the full article →

Networking for Investment Banking Jobs

January 4, 2010

The giant online job boards that sprang up a dozen years ago were revolutionary at the time, but may have outlived their usefulness. So says Jon Gray, a financial services veteran who’s profiled in the popular ongoing series Laid Off and Looking in the Wall Street Journal online. Specialized online job boards may be a […]

Read the full article →
Real Time Web Analytics