Pay will never be the same again

8 October 2008

2 minute read

With the financial system in crisis and politicians of all hues calling for compensation to be capped, it's easy to miss a more prosaic reason why bonuses are unlikely to reach stratospheric levels in future: broker dealers no longer exist.

Ken Lewis underscored the point in a recent interview with Fortune magazine. "Merrill was paying typical Wall Street pay," he said. "Their staff people were making a lot more than our staff people. That won't last. We intend to pay market instead."

How much less can Merrill people expect to make now they're being absorbed into BofA? It will vary by business area, but the differential is likely to be noticeable.

"Commercial banks have tended to pay 25-30% less than investment banks," says Michael Karp, chief executive of international search firm Options Group. "That made investment banks attractive places to work, but that sort of glamour is fading now that everyone's turning into a commercial bank."

BofA isn't universally frugal - staff hired into former growth areas like leveraged finance in 2005/6 were brought in on generous packages. However, senior M&A bankers at BofA earned substantially less than their counterparts at Merrill: "If MD packages for investment banking at Merrill were $3m-$4m, at BofA they were more like $1.5m," says one headhunter.

Lewis is keen to propagate the idea bonuses aren't coming back. "The Golden Age for financial services is over," he told Fortune. "It will never be the same, not in my career. Revenues will be far harder to get in the future."

AUTHORSarah Butcher

Global Editor

J
J
11 October 2008
Hedge funds are the new investment banks.. Expect a lot of smart people moving from banks to hedge funds, especially if pay goes down.
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Ta
Tarquin
9 October 2008
Partners at successful law firms do not work 9-5, and anyone that believes this is either being very stupid or totally naive. My brother is a partner at a mid-tier law firm and easily works 75 hour weeks.
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h
h
8 October 2008
Prentending that lawyers at top firms work 9-5 is just idiotic. Lawyers were actually very busy before the current crisis and are even busier now (ok, save for structured finance / securitization teams).
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Ex
Ex-IBD
8 October 2008
Too many people were giving up becoming doctors / physicists / engineers etc to go into banking purely for the money. This is a good time to reconsider priorities. If you do love finance, you would not be doing it purely for the money. The new regulatory regime and public backlash against bankers will ensure that the next few years will be a much tougher time in terms of renumeration (much higher than the general public though) and it is good actually that some sanity came back to the market. Was what we did that much better for the social good than a doctor or scientist? I didn't think so!
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CD
CDO Man
8 October 2008
How Ironic. Wasnt BoA one of the highest payers during the CDO Boom?
I had graduates with one year structuring experience from my team leave my top tier firm to go to BoA back in 2006 for good 6 figure packages. From what I saw they paid well over market levels to entice candidates during the time they were building up there CDO business.
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