How Much Does Investment Banking Pay Off in the Long Run?

investment banking

Making it big in the corporate world is the goal of most, if not all working professionals. It could mean achieving a top brass position, a 6-digit or above salary or both. The corporate world is ever-expanding, evolving and highly competitive nowadays and for the working professionals, this means there are more options for landing a high-paying job.

One job that holds such promise is investment banking. The investment banker job is receiving a lot of buzz lately, and it is understandable why – it pays incredibly well. For those of you who might be interested, read as we find answers on how much investment banking pays off in the long run.

Investment Banking Overview

To understand more about investment banking and shed light on its exceptional pay rate, we’ll need to first know what the job is. Simply defined, it is a specialized division in banking that caters to companies, governments and other entities regarding matters that concern the creation of capital for these clients. As such, an investment banker handles a wide range of duties and functions. They help clients generate money in capital markets through the issuance of debt or the selling of equity in companies. They also play important roles in helping clients with mergers and acquisitions and giving clients advice on unique and profitable investments such as buying or selling underlying assets. These are just a few reasons why investment banking salaries are among the highest in the corporate world. Also, the work environment of an investment banker is never easy. They often work under pressure due to the tight deadlines of the projects and they often work long hours in a traditional workweek – reaching 90 to 100 hours per week.

Investment Banker Salary Structure

There are varying reports as to how much investment bankers actually earn and how their salaries are structured. Some reports only show a vague range of salaries, ranging from $155 to $205k, based on the overall performance of their banks. Other reports show that investment banking professionals have two components of compensation – salary and bonus – but do not break down these components further or provide additional details about the bonus component. Reliable sources point out that there are five components of the investment banker salary: the base salaries and the bonuses which are further categorized as end-of-year bonuses, signing bonuses, stub bonuses and benefits.

 

  • Base Salary

 

This is the steady and consistent income investment banking professionals receive. They earn this rate regardless of whether they are superstars or underperformers. An investment banking analyst in a mid-sized or large bank can earn as much as $85k, $90k, and $95k for the 1st, 2nd, and 3rd year, respectively. Associates get paid off approximately $140k to $180k as they move up the promotion ladder. Also, the type of banks that investment bankers work for can make the difference in the pay rate. Some elite boutique banks may have a higher pay rate, while regional boutique banks can have a lower rate.

 

  • Signing Bonus

 

Some reports fail to take this bonus into account, but most banks pay a one-time bonus to new hires that have reached a full-time status. Again, the signing bonus range can vary depending on the bank and depending on the position. For analysts, the signing bonus can range from $5k to $15k. Associates receive a significantly higher bonus range.

 

  • Stub Bonus

 

Newly hired analysts and associates usually start in the summer or after the calendar year have begun. While this would usually mean that they won’t receive bonuses by the end of the next year, some banks pay a portion of the full bonus within their hired year. The analyst stub bonus may range from $20k to 30k, while associates earn a higher range. Nevertheless, the stub bonuses are generally lower than the first-year base salary, but some of these professionals still consider the stub bonus a welcome development.

 

  • End-of-Year Bonus

 

This is a percentage of the investment banking professional’s base salary, and it is based on their overall performance and how much the bank plans to pay. Some banks pay their bonuses at the end of the same year the analysts and associates are hired, and pay stub bonuses after the succeeding 5-6 months. Some banks choose to pay after a full year of work has ended. The full-year bonus for analysts usually ranged from 70% to 100% of their base salaries, while top performers can have a bonus of 100% or above the base salary. Associates have the same regular bonus range based on the salary base and top associates can have bonuses exceeding 100% of their base salaries.

 

  • Benefits

 

The analysts and associates both receive vacation days, health insurance, and the possible inclusion of the bank’s 401(k) retirement plans or profit-sharing scheme. While the benefits are not considered as monetary compensation or bonuses by some reports, we included this as an essential component due to the importance of having solid health insurance for employees.

Why Do Investment Bankers Have High Salaries?

By now, we may have at least realized that being an investment banker is no easy job. The work hours are longer, the work environment is stressful and the deadlines and priorities are always hectic. On a larger view, investment bankers also help businesses, corporations, governments and individuals acquire more profits from their ventures. These transactions generate big fees and revenues, which is why being smart, hard-working and skilled are important for handling this job. Thus, it is considered appropriate to have a high salary for a job in investment banking.

 

Person Counting Money With Smartphones in Front on Desk

Jobs have varying requirements and pay. While some jobs seem more attractive due to the high pay, there are reasons why they pay well. Most of the time, the complexity of the work is commensurate with the pay, as in the case of investment bankers. Their pays are high by today’s standards, but the jobs they perform require a high level of analysis, efficiency, dedication and skill. If you are up for the challenge, then this might be a job for you.