A new generation of Wall Street bankers is about to get a raise, as firms open wallets to head off defections to investment funds and Silicon Valley.
Bank of America Corp. plans to boost salaries by at least 20 percent next year for junior staff in trading and investment banking globally, while Goldman Sachs Group Inc. increases salaries for junior U.S. workers by about that much, according to people briefed on the decisions. JPMorgan Chase & Co. and Citigroup Inc. are considering similar plans, people with knowledge of those deliberations said. Morgan Stanley also decided this year to raise salaries for some mid-level bankers.
Wall Street firms have cut hours and improved conditions for junior bankers to stanch the loss of talent to competitors such as private-equity firms and hedge funds, and to technology companies whose stocks have soared. Charlotte, North Carolina-based Bank of America also is among investment banks that have encouraged analysts to take time off on weekends.
“These firms want to hire the smartest of the top grads, that’s part of building for the future,” said Paul Sorbera, president of Alliance Consulting, a New York-based search firm. “They’re competing with tech firms that are a little sexier than finance to the younger generation.”
Bank of America is boosting fixed pay for summer associates who have been asked to join the company around August 2015, said the person briefed on the move, requesting anonymity because it hasn’t been announced publicly. Some new employees already working there also will get raises, while bonuses remain variable, the person said.
JPMorgan is likely to increase salaries by at least 20 percent for some junior employees, the person familiar with its talks said. Citigroup is weighing a potential salary increase of about 20 percent for analysts and associates, and the New York-based firm hasn’t yet decided what regions would be covered, the person with knowledge of its discussions said.
Investment funds are more aggressively poaching junior bankers who’ve already been vetted and taught the basics at big Wall Street banks. While that strategy stretches back decades, the approaches are starting even earlier in the novices’ careers and have come as banks struggle to keep costs and compensation down.
“There is a lot of competitive pressure for them when they are losing young junior talent that they have trained to private-equity firms and to each other,” Michael Karp, chief executive officer of recruitment firm Options Group Inc., said of banks in a phone interview. “They can’t pay huge amounts of bonuses as they have in past years.”
The financial crisis weakened banks’ footing. After 2008, firms slowed hiring while overhauling pay packages for top earners, emphasizing salaries and deferred bonuses to discourage risk-taking for fast rewards. That’s now contributing to staff shortages and compensation tensions in the low and middle rungs of some companies, Sorbera said.
“They have a lot of senior people, and they haven’t been building the rank and file very much in the last five or six years,” he said. “They may just also be doing some catchup in salaries. We’ve already seen that with the more senior people, where salaries have really gone up and are a greater portion of comp.”
Morgan Stanley is raising salaries about 25 percent for associates and vice presidents in its investment-banking and underwriting units, a person briefed on its decision said last month.
Goldman Sachs’s raises apply to employees in all divisions with the title of analyst, typically recent college graduates, said the person with knowledge of its plan. The move won’t affect bonuses, which are based on the firm’s and employees’ performance.
Goldman Sachs’s salary increases will bring some first-year analysts’ annual base pay to about $85,000, the person said. Such employees typically receive $70,000 to $90,000 in salary, with bonuses bringing total compensation to as much as $140,000, according to New York-based consultant Johnson Associates Inc. The junior-banker title doesn’t refer to research analysts who recommend stocks to investors.
In 2012, Goldman Sachs decided to stop offering two-year contracts to investment-banking analysts, instead making them full-time employees from the start. Last year, the New York-based firm discouraged them from working weekends and pledged to hire more junior workers to prevent overloading.
Goldman Sachs set aside 37 percent of revenue for pay last year, down from 38 percent in 2012 and 42 percent in 2011. The ratio was 43 percent in the first half of 2014, the same as a year earlier.