We are about to tell you something you already know. Investment bankers are in it for the money.


Nothing – not the events of September 11, or all the talk about work/family balance, or the emphasis on better health and less stress – can rattle those for whom the chance to earn millions, relatively quickly, outweighs all other priorities. 


This was the hardly startling conclusion of a recent survey by management professor Peter Cappelli and executive search firm Spencer Stuart that studied a group of professionals whose industry has been rocked over the past year by both a terrorist attack and a recession. 


“We weren’t really surprised by the results,” says Cappelli, director of Wharton’s Center for Human Resources. Cappelli noted that 73% of the 200 survey respondents said becoming wealthy was their top career objective, even if some did suggest they viewed life a little differently after September 11.


“The results validate what we sensed all along,” adds Jeff Bell, who co-heads Spencer Stuart’s global securities and wholesale banking practice. “We were most interested in the investment banking psyche – the goals and expectations of individuals in an up-or-out environment where the notion of a career has become” almost obsolete and what prevails is “something like the mentality of a professional athlete: Your career is short, you have almost no control over it, you could get downsized or merged tomorrow, your boss could get fired or you could get fired. Investment bankers expect to be paid for the risk. They have gone to Wall Street to get rich. Period. Full stop. End of story.”


Just what are the expectations of investment bankers? According to Cappelli, “they expect to earn about $10 million to $20 million by the time they are 40 or 50. The broader question is, has the definition of wealth changed? The answer is yes, and that’s because uncertainty about their future career has gone up. The pressure is on employees to make their retirement nest egg in that mid-career period. They aren’t counting on a pension. Twenty years ago if somebody had the equivalent of $1 million, that was a ton of money because they were expecting a pension that would give them 50-60% of their salary until they died. Now they think they will get laid off as they get near retirement and there most likely won’t be a pension. So they need to make enough money relatively early on to support themselves in retirement.”


Or, as Bell puts it, “For some people money doesn’t buy happiness but it can go a long way in addressing security needs.”


Some of the most interesting statistics from the survey include:


·         About 88% of respondents agreed that they would expect to work in another career before they retired. “If you have made $15 million to $25 million by your mid to late 40s, then you can decide if you want to teach English or coach baseball or do public service,” says Bell. “But very few actually go into government or philanthropy. The ones who really love the game go into private equity and make even more money.” 


·         Only 14% said they would stay in investment banking if they couldn’t make a lot of money. “This isn’t like public school teaching,” says Cappelli. Investment banking “is not a job where you are getting a whole lot of satisfaction out of it other than money.”


·         Only 30% of the bankers would accept lower pay “for a less stressful work life” and only 44% would do so for a better balance between work and family.


·         About 83% of respondents expected a higher level of volatility in their compensation in the future, but only 12% agreed strongly – and 36% agreed somewhat – that recent consolidation and the downturn in the securities industry “have led me to expect a lower level of compensation throughout the remainder of my career as an investment banker.”


The recession and corresponding drop in pay for investment bankers has brought some interesting developments to the profession, Bell notes. “This year the troops will complain, but they will accept lower compensation because they have no choice. Where else are they going to go in this kind of business climate? So the leverage is clearly with employers who, for the first time in about six years, can address the shareholders vs. employees issue. They can decide what rate of return they need to report in order to keep shareholders and analysts happy; what is left over they can put into the bonus pool. It’s been the opposite situation since 1995, when employers had to create bonus pools first to keep employees happy; if they didn’t the employees would leave. Shareholders came in last. Now it’s reversed.


“When the good times do return, and they will,” Bell says, “the securities industry is such that margins are high enough to cover up a lot of sins. If you have 200 people in a mergers and acquisitions group generating $1.4 billion of revenue, you can afford to pay them well and still have a lot left over for the firm. When those kinds of margins return, the expectations of employees will be what they always have been, and they will again assert themselves and demand huge compensation.”


The trouble comes when there is an effort to make any significant long-term change in the way investment bankers are paid, says Bell, recalling that when Salomon Brothers “came under fire from regulators and shareholders in 1994, one of the most disastrous elements of Warren Buffett’s turnaround plan was to cut back drastically on the bonus pool and tie pay to return on equity as opposed to department profits.” That change led to the departure of more than 20 managing directors.


One of the characteristics of Wall Street that is unique, Bell adds, is its flat organization as opposed to the classic corporate hierarchical structure.” This means there are literally thousands of people making exceptional levels of money,” he notes. Even recent graduates start out at $150,000, move up to $500,000 within a few years and 10 years out are making $1.5 million. In a large corporate structure, only about five to six people reap the lion’s share of the compensation.”


According to Cappelli, however, it’s important to remember that the survey looks at a certain type of employee at a certain time in their careers, and no more. “When we were younger, the idea went around that advertising executives always die young,” he says. “It turns out that was a statistical artifact. The reason was that almost everyone got out of advertising by the time they were 50, and as a result anyone who was an ad executive and died had to be young. What happens in investment banking is the people who are interested in family work/family balance leave the field. The only ones we see are the ones who are gung-ho. We are catching a slice of the population who at this particular time is very interested in making money.”


Other results of the survey:


·         62% said the events of September 11 have caused them to focus less on their career and more on their life outside work. That may be so, says Cappelli, but the increased reflection and introspection doesn’t translate into a willingness to give up any money.


·         43% said the recent consolidation in the industry has made them less likely to recommend investment banking as a career to others.


·         51% said they often think about quitting.


·         83% of the respondents are between the ages of 25 and 44.


·         11% of the respondents are women.


Several of the respondents offered observations of their profession:


“Banking is a bit like a war of attrition … I think that anyone coming into it should do so with a two-three year time horizon because the workplace environment and stress of every day life mitigates against long-term planning,” wrote one. 


“The truth is, no one does this for 15 years just for the money. If one has made it this far it is because he finds an adrenaline rush in the job that he can’t replicate anywhere else,” wrote another.


“The gravy train has ended. Wall Street moves from cycle to cycle of overcompensating executives who contribute relatively little in the way of real value to their firm. When the downturns hit, the younger bankers suffer. That cycle has to end,” said a third.


“The investment banking business has become much more competitive, less personally rewarding and significantly less fun than it was just a few years ago. The bureaucratic and political aspects of the job continue to grow at the expense of client coverage,” added another.


One final comment: “Life is cyclical … So is compensation. Get over it.”