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Morning Coffee: 'Only households earning $350k+ are happy in cities.' Capitulation to harsh non-competes

A favourite question during quiet times on the trading floor is always, “How much do you really need to earn?” Like really?  

Over at the Reformed Broker podcast, they discussed this very same issue in the context of some 'research' recently published on Marketwatch which said you need $350k to live a 'middle class lifestyle' in America's coastal cities. A budget breakout showed that once you've paid for a litany of expenses, including a 401k, childcare, preschool, food, mortgage, property tax, healthcare etc., you only have $121 left each month for miscellaneous spending. Even on $350k, you're not dressed in Gucci, but Old Navy.  

As they note over at the Reformed Broker, this begs the question, “If it’s true that you can’t live in New York on less than $350k, what are all those millions of people doing there?” And then, 'What constitutes middle class versus upper middle class?”  Similar conversations on the trading floor usually end when some sage makes the joke that “You can’t call that living,” in reference to the median and then everyone realises that what's actually being discussed is the level of consumption socially expected from someone in the financial sector. 

At the Reformed Broker they observe that the upper middle class households on $350k who live in New York probably share a defining characteristic  "One or both partners are taking the train into Manhattan every day." This in itself can be a problem as McKinsey & Co’s report on dual career couples made clear: men in particular, are less happy with their jobs when their wives are also working; women are ambivalent about their working husbands. Balancing the demands of two careers is extremely difficult, and doing it anything other than fairly is a recipe for relationship disaster over time.

Irrespective of whether you're part of a high earning high-powered couple, the best way to foster happiness on <$350k in a 'coastal city' is clearly do dial down the expensive tastes. They're one of the subtle ways in which the investment banking industry manages its workforce without even really trying.  To motivate an Associate on $150k a year, you need them to believe that life without ski weekends and designer shoes is hardly worth living. To motivate Executive Vice Presidents, you need them to feel that they’re letting their family down if they’re not writing five figure checks out of post tax income every school term. 

To really enjoy the status of “upper middle class”, a banker needs either to earn enough to support a non-working spouse, or to be part of a couple who between them earn enough to pay for huge amounts of expensive child care (and who have made mental peace with not seeing their children awake for a few years).  For that, and to ensure disposable income for the generally expected bill of lifestyle goods and services, household pre-tax income has to be far higher than $350k.  And this, of course is how the banking industry manages to motivate senior directors and MDs. 

The point of the system isn’t to deliver a certain level of aspiration – it’s to keep the carrot bobbing just a few inches out of the donkey’s reach.

Separately, not everything is as subtle as the treadmill of aspiration.  Sometimes, it's just about signing some of your rights away.  That’s what’s happened at DE Shaw this week, as management set a deadline for their staff to sign their nasty new non-compete agreements.  

As it turned out, 98% of staff signed on the line, with some junior employees and Matthew Karchner of the long-short equity group refusing and thus being terminated (albeit keeping their deferred comp).  This capitulation probably reflects the fact that DE Shaw is a good name, that start-up hedge funds often fail and that the proprietary knowledge that the non-compete agreements aim to protect is often surprisingly useless without the data, systems and trading infrastructure which are much more difficult to replicate. 

According to the press release “the process prompted many thoughtful conversations, as people considered the role of DE Shaw in their lives and careers.” We can’t help suspecting that another theme of these conversations was the perennial, “How much do I really need to live on?”


“His son would cry every time he saw his roller bag packed for another work trip”, and so (rather than being excited at the prospect of a few days away from all the crying), a management consultant quit to take a think-tank job with 30% lower pay but better work life balance.  A survey of millennial attitudes suggests that the long-hours culture is losing ground (NYT)

So far, according to EY, only about 1.000 jobs have moved from London (mainly to Frankfurt and Paris) as a result of Brexit. (Bloomberg)

Michael Duvally of Goldman Sachs on becoming Maeve: "immediately looser and happier.” (CNBC)

JPMorgan has got a 'virtual internship' which is basically a 5 hour coding test instead of its standard 45 minute Hackerrank appraisal. (Business Insider) 

Deutsche Bank sold its equity derivatives book to Barclays and Goldman Sachs. (Bloomberg) 

Does your employer have a “sleep content hub” full of tips and tools to persuade you to sleep one more hour every day?  Asian insurer AIA does, and the firm says it’s backed up by science that will help make its staff (and its policyholders) more efficient. (Finews)

“Getting the band back together” is a surprisingly common phenomenon in finance, and underlines the importance of relationships and camaraderie.  New hedge fund Connacht Asset Management is full of Sean Gallagher’s former Goldman Sachs colleagues. (Bloomberg)

Given its reputation as a tight clique recruited from bulge bracket investment banking divisions, it’s perhaps unsurprising that venture capital has a poor track record on diversity.  Female employees were forced to “crowdsource” parental leave policies in a WhatsApp group as so many firms were unable or unwilling to draft one. (Financial News)

“Stiff, cerebral and impatient” is not necessarily how you’d ideally like to be described in a profile, but Ulrich Koerner is Swiss banking’s ultimate survivor, having held top-level positions at either UBS or Credit Suisse for the last 16 years. (Finews)

Photo by Andrea Cau on Unsplash

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AUTHORDaniel Davies Insider Comment
  • An
    20 September 2019

    Of course, its not actually clear whether venture capital firms do have 'a poor track record on diversity' ('diversity', in this case meaning looking only at gender) or why recruiting from investment banks would make it so. And not sure the female employees were 'forced' to draft parental leave policies.

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