WSJ: ... the numbers—the real numbers—for mid-career investment-banker salaries.
The paymaster noted that median precrisis pay was about $2.2 million a year. On average, some $200,000 came in base pay, with the remaining $2 million coming in an annual bonus, about 60% of which was paid in cash.
That is roughly $1.4 million before taxes, leaving after-tax take-home cash of about $700,000 a year, he calculated. That is slightly less than at the banker-pay peak of the early 2000s.
Today, the paymaster said, median banker pay is about $1.6 million. Base cash pay is higher, at about $400,000. But now, the bonus portion has been flipped. About 60% to 70% comes in the form of deferred compensation, largely in company stock.
That means there isn't nearly as much cash coming in during the first year of the pay package. Roughly speaking, that comes to about $380,000 in after-tax cash. A princely sum by most standards, but quite a comedown for anyone conditioned to take home nearly double that.
The smaller annual cash payout might mean fewer days of vacation at the Atlantis or one less domestic helper, but the deeper issue is the amount of pay that is deferred and dependent upon the long-term success of the bank.
This calls into question the grand bargain of investment banking.
In the precrisis days, bankers would work ungodly hours, fly halfway around the world at a moment's notice and kiss up to clients and superiors, all for the promise that they would retire rich in their 40s or early 50s. It was like working a job that had a very lucrative pension.
Now, with so much of his or her compensation at risk, the prospect of the banker toiling deep into his 50s or even his 60s is very real.
The surprise is, this has less to do with direct regulation of pay and more to do with the profitability of the business itself.
A weak economy, tighter rules on using leverage and higher reserves are indirectly hitting salaries. Investment banks just aren't making money like they used to. "The reality has only partially sunk in," said the paymaster. "It's harder to put the kids through school."
The other dream for bankers was to hit it big with one great year. But that too is getting harder. Top bank officials across the Street report the number of $5 million earners has fallen significantly since the crisis. The once-vaunted "$10 million man" is the rarest of breeds. Today, a $5 million salary puts a banker at the 90th percentile for pay, according to the paymaster's figures.
The long-term deferred-compensation packages are chilling the banker labor market, because unvested shares disappear when a banker switches jobs. Even "garden leaves"—the mandated vacation time between an old job and a new one—have extended to 90 days from the precrisis 60 days. With fewer people switching posts, there is less activity in the entire system, which has the effect of keeping salaries down.
See comments for more! My guess at a career payoff table:
Individual is a smart, conscientious, driven kid with Tier 1 credentials. But no superpowers ;-)
startup / tech
mid: ~$200k/yr, no hits, stuck working for big company as VP, no early retirement
90th: small hit, makes a few million, still working as above
99th: big hit, makes >$10 million, retires early, maybe rinse and repeat
99.9th: big, big hit, $100M payoff, livin' large :-)
mid: ~$400k/yr, lives in NJ, can't retire
90th: ~$2M/yr for 10 years (mid-career), retires at 45-50 with $7-10M put away
99th: same as above but with several times higher net worth and earlier exit.
A professor comes out (financially) behind both of these tracks, but perhaps happier, more relaxed, more job satisfaction.
If we further restrict the group of individuals to Tier 1 PhDs in physics, it seems to me that the 90th percentile outcome in finance described above is more like 60-80th percentile.
Startups give you the possibility (but at long odds) of cashing out earlier. I would guess startup guys like their work better than finance guys -- they are often idealistic and want to change the world with their technologies. But risk-adjusted return seems higher on the finance track. I would be interested to hear how the payoffs for, say, an HLS or HBS or HMS grad compare to the above.