Ok, so I interviewed with an M&A investment bank yesterday and got a call back today to continue the process. During the interview, I came to find out that they expect their typical analyst (22-24 years of age) to work around 80 hours per week, and the total comp is about $80,000 per year (this is not in NYC; town of much lower cost of living). The firm is hiring 1 person and has a ton of resumes and can pretty much have the pick of anyone they want; my question is, why wouldn’t they hire 2 analysts and pay them $40-45k per year and have them work a more constructive 40-50 hours per week (actually, this question goes to all IBDs)? I doubt these banks (especially in my area) would lose many applicants considering that the career path is in high demand and limited supply and the exit opps. (huge form of compensation) are terrific. I just don’t get it. Even having worked the job, I don’t get it.
To start with, your economics are wrong. Typical all-in costs for an employee are 3x the salary.
not that its the best reason but the compensation you see is not compensation that the bank pays. so much taxes in US, social security, unemployment ins, etc etc.also space in most downtown areas cost money, training cost money, etc etc …a 80k employee probably cost bank $120-150k… which is peanuts in grand theme of things though…(when BSD make $5mm in a bonus)
How are my economics wrong? This is the salary/comp we’re talking about; I’m not factoring in FICA. That’s all I’ve been told. Ok…so, since we’re all good at math here, once again, why don’t they hire 2 analysts for half the salary (times 3)? Or to hell with cutting the salary at all. Since it is peanuts to an investment bank, why don’t they just hire more people? This boggles the mind.
maybe same reason NBA limits the amount per team. maybe the more IB a bank has the more medicore the teams appear. it’s an elitist environment and you are trying to apply logic to it where none exist. don’t question the rules, just play the game.
So now you’ve got yourself a riddle. Either the IBs have all got it wrong, and you’ve discovered a great arbitrage (start an IB where you pay analysts half the salary; make your fortune). Or you’re not understanding something correctly. This exercise might help: take the other side of your argument; write down 3 reasons why it might not be right.
Because physically manging two people is twice the pain of managing one.
IB and their employees have a very capitalist state of mind. I think as MFE has pointed it out, it costs the bank a lot of extra money for an extra analyst. The analyst accepting is willing to put in the time to make amazing money and the bank is happy with this analyst (they have a large pool to hire analysts they are happy with) because they save costs and time training him, so at the end both are better off.
kkent Wrote: ------------------------------------------------------- > How are my economics wrong? This is the > salary/comp we’re talking about; I’m not factoring > in FICA. That’s all I’ve been told. > > Ok…so, since we’re all good at math here, once > again, why don’t they hire 2 analysts for half the > salary (times 3)? Or to hell with cutting the > salary at all. Since it is peanuts to an > investment bank, why don’t they just hire more > people? This boggles the mind. Your sarcasm is only funny, because once again you are miles from the mark, and think that you are right. Factor in every other cost of employment (insurance, office space, computers, programs, etc… etc…) Lets also note the fact that you use “high demand and limited supply” as a reason they could hire more. You double the supply, and all of a sudden that function doesn’t quite work, does it? And how about work flow. Try working on building a valuation model, or a pitchbook, or comps, etc… Ok, now split the work up. It will take more cumulative man hours, because it is more efficient to have one person do the task (go make revisions to somebody else’s model, and you’ll see what I mean). Nevermind, the $$$. Why would I work 40 hours for $45k when I can go work a hundred other jobs coming out of college and make more. All of a sudden you are further diluting the talent pool, and they might forced to hire…well…you.
Are they really better off though? Even a person with a AAA personality can’t be as effective in hour 70 as he is in hour 40. How is this effective? I’m not saying they wouldn’t lose some good analysts by cutting salaries and hours worked, but given the exit opportunities and the intense competition for these jobs, I really don’t think they’d have problems getting quality people. I know opportunity cost is tough to factor in, but how many quality minds is investment banking in general losing by its unnecessary workload?
Honestly, I’ve thought about this myself and I understand the economic arguments, but really it’s not about economics. There is plenty of money to go around, and hiring 12 analysts as opposed to 8 and working them each 60 hours, and paying them each less is not going to hurt the bank’s bottom line. In fact, productivity would be improved. The marginal productivity after 60 hours is substantially less…thus even if you’re saving money in salary, you’re “paying” in loss of efficiency. Essentially, I think what started out as an economic decision (hiring less analysts, save money) is now engrained in the culture of the IB’s. Every VP and MD had to have their life blood sucked out of them and work 100 hour weeks for 10+ years, and “dammit everyone that works for them is going to do the same thing.” It’s just the way it is, and it sucks, but essentially the analyst stint acts as a proving ground. By proving that you can take the mental and physical anguish early on, you earn the right to be a deal maker early on. It makes sense in this context - the big dogs aren’t going to let you have a slice of the pie until they are comfortable that you’ve adequately earned it by paying the price or “paying your dues”.
DirtyZ Wrote: ------------------------------------------------------- > Honestly, I’ve thought about this myself and I > understand the economic arguments, but really it’s > not about economics. There is plenty of money to > go around, and hiring 12 analysts as opposed to 8 > and working them each 60 hours, and paying them > each less is not going to hurt the bank’s bottom > line. In fact, productivity would be improved. > The marginal productivity after 60 hours is > substantially less…thus even if you’re saving > money in salary, you’re “paying” in loss of > efficiency. > > Essentially, I think what started out as an > economic decision (hiring less analysts, save > money) is now engrained in the culture of the > IB’s. Every VP and MD had to have their life > blood sucked out of them and work 100 hour weeks > for 10+ years, and “dammit everyone that works for > them is going to do the same thing.” It’s just > the way it is, and it sucks, but essentially the > analyst stint acts as a proving ground. By > proving that you can take the mental and physical > anguish early on, you earn the right to be a deal > maker early on. It makes sense in this context - > the big dogs aren’t going to let you have a slice > of the pie until they are comfortable that you’ve > adequately earned it by paying the price or > “paying your dues”. You do understand that there are more costs than just salary, correct? Hiring 2 people at X salary will cost you more than hiring one person at X*2 salary.
FIA, why are you being a prick for no reason? I’m not being sarcastic and I don’t know what the hell you’re talking about. I know that most companies have fixed costs with their computers (ever see the number of unused computers?). Office space? Come on. Please. I’ll give you FICA and other insurance, but once again, I wasn’t talking about that–I was just throwing out the comp numbers I was given.
Because the type of people who settle for 40-45k and 40 hour weeks are not the type A personalities that banks want to attract.
lets just hire all the unemployd and take a pay cut to pay them…that sounds good eh
you dont need to be that effective to create pitch books from old ones and play around with different slides or create comp tables. The thinking is mostly done higher up at least an echelon or two. This is not something new, the mad hours and all, its an industry for money hungry people and it works well how it is.
kkent - this is not really related, but in terms of cost of living, there really shouldn’t be a huge difference between NYC and say Raleigh, NC for a 24 year old. I know that sounds crazy, but think of what you actually spend money on. Your primary costs are going to be housing, transportation, clothing (in banking), food, and entertainment. If you’re in Raleigh, you pay say $700/month for rent and NYC $1500, so you you lose $10,000 there ($15,000 pre-tax). Transportation you will actually benefit because you won’t need a car. Clothing should be the same in either place. Entertainment is obviously more expensive in NYC, but if you only go out 1-2 nights a week (and you won’t be going out as an analyst) then it is neglible. Food you won’t even by paying for as an analyst because you’ll be at work for all your meals - you’ll just be paying for breakfast. Bottom line…cost of living might turn out to be $15,000 more in NYC, but if you can make $140-$180k in NYC vs. $80 in another spot you still come out ahead by a substantial margin.
I’ve wondered the same thing for a long, long time. Another thing to consider is burnout. Turnover is expensive. So, why make people work 80 hrs / week so they’ll leave in 2 years? Wouldn’t you rather pay someone ½ as much, work them 40 hrs / week and then have them stick around for 4-5 years? A 3rd or 4th year IB analyst working 40 hrs/week is probably as productive or more productive than a new guy working 80 hrs/week.
kkent Wrote: ------------------------------------------------------- > FIA, why are you being a prick for no reason? I’m > not being sarcastic and I don’t know what the hell > you’re talking about. I know that most companies > have fixed costs with their computers (ever see > the number of unused computers?). Office space? > Come on. Please. I’ll give you FICA and other > insurance, but once again, I wasn’t talking about > that–I was just throwing out the comp numbers I > was given. Congratulations, you admit to picking and choosing the data points you use. You can NOT look at just salary. Salary is only a portion of the costs. Add on top of that, most tasks can only be handled by one person. I don’t want somebody else messing with the model I’m building, and I don’t want to have to mess with somebody else’s model. And why am I being a prick? I will let you leave that up to your imagination. And I find
Dermot, in the few months I worked in this setting, I think that that’s just garbage spouted out by the big-shots (not talking about you, just in general). It doesn’t take a type A personality to do an analyst’s job, such as running comps, putting together powerpoint presentations, assisting the presentations, and building some models. I honestly think it’s the synthetic culture that DirtyZ is talking about. But that’s why I’m asking.