Investment banking is one of the most prestigious career paths in finance and even though the work is gruelling at times, the pull behind investment banking roles for most people is that you have the ability to make a lot of money.
So, let’s jump right into it – how much do investment bankers really make?
The general salary compensation range for a first year investment banker is $85-95k. This gets bumped up with signing bonuses ($5-15k), stub bonuses ($20-30k) and end-of-year bonuses (70-80% of base salary).
An associate base salary in the US can increase to $140-180k as they climb the corporate ladder.
The actual salary you receive will depend greatly on where you hire into. The figures above are ballpark numbers.
Investment Banking Compensation Explained
For junior analysts and associates recruiting into investment banking, your salary will be made up of five components. We touched on some of them briefly above but let’s break them down.
- Base salary. This is your bread and butter, which you’ll take home regardless of performance. As mentioned, for mid- to large banks this will be in the range of $85-95k for 1st, 2nd and 3rd year analysts. Boutique banks might pay more and they might pay less. Associates will earn $140-180k as they move up the ladder.
- End-of-year bonus. Your end of year bonus will be a percentage of your salary and it depends on your performance, deal flow, industry experience and which ranking bucket (general five buckets) you fall into. These bonuses tend to be in the range of 70-100% of base salary and, like base salary, can vary if you are an elite or boutique bank.
- Stub bonus for new hires. When analysts are hired in the summer, they’ve been working at the bank for 5-6 months when bonuses are due. These hires get a stub bonus in the region of $20-30k. Associates hired in the summer will get a lower percentage of base salary.
- Signing bonus. First-year analysts can also receive a one-time signing bonus in the range of $5-15k. Associates receive a multiple of this figure which is significantly higher.
- Employee benefits. Often overlooked are the 401(k) plans, health insurance and vacation days.
Senior Investment Banker Salaries
As investment bankers in bulge bracket banks climb the ladder, their base salary increases significantly. A large portion of their bonus, however, comes in the form of stock and deferred compensation.
Deferred portions generally vest over a period of 3-5 years which incentivizes bankers to stay with the firm and potentially receive a bonus as high as $1 million.
Once promoted to a senior investment banker, bonuses are closely intertwined with individual performance and what you generate in terms of fees for the bank. It depends on the bank mostly, however, deals worth less than $1bn might come with a 1% commission, while deals worth more than that will scale down to around 0.1%, but even then, a 0.1% commission on a $50bn is $50 million.
Investment Banking Salary Ladder
First, second, and third-year analyst salaries fall in the range of $85-$95k with bonuses ranging between 70% and 100% (scaling with tenure at the investment bank). Adjusted for potential bonuses, their salaries look something more like this:
|Pretax Salary||With Stub & Signing Bonus|
|1st year||$140k – $160k||$150k – $170k|
|2nd year||$160k – $180k|
|3rd year||$180k – $200k|
Associates tend to earn salaries in the range of $140-180k or $250-400k adjusted for their bonus.
First-year associates tend to earn slightly less than $200k due to their stub bonus, however, their salary progresses quite nicely from Year 1 through Year 4.
Vice President & Director Salaries
Investment Banking Vice Presidents through to Senior VPs will be earning $200-300k base salary.
Their bonuses vary in the range of 120% – 150% of their base salary with total compensation reaching upwards of $450k to $700k.
Managing Director Salaries
If you ever reach the level of Managing Director you will be earning upwards of $1m a year with base salaries in the $400-600k range with incredibly variable bonuses ranging from close to nothing to several million dollars.
Other Factors Impacting Compensation
Compensation does not vary much between different groups at the analyst level.
At that level, salary generally does not tend to vary that much based on the hiring bank and even if the analyst’s deal flow is poor, compensation levels tend to average out since junior investment bankers don’t do the majority of deal closing.
As you move up, your salary starts to fluctuate a lot more based on the type of investment bank you are working for. Generally speaking, at capital market groups the remuneration tends to be towards to lower level whereas M&A groups tend to rack up the big bucks.
Is The Salary Worth a Career in Investment Banking?
Looking at the salary figures and comparing what different roles are earning might help you understand the market better but is the compensation worth it for a career in investment banking?
The first question to ask yourself is why you want to get into investment banking. If it’s just for the salary then there are much better and less competitive careers that have compensation far in excess of banking.
For example, tech companies pay a lot more for engineers. Not only at the base salary level, but once you factor in the equity options offered you will likely outperform banking bonuses.
Working at Google or Facebook, you’d be looking at an average compensation of up to $200k and much more relaxed working hours of 40-50 hours a week. It’s a much more comfortable lifestyle.
It’s worth mentioning that there are disadvantages at smaller tech companies such as slow ladder progression, lower pay ceilings and less executive roles available.
Undergraduates often start out in investment banking as a stepping stone to exit into the lucrative private equity world where the compensation ceiling is far higher because you can reap the rewards when an asset increases its value by 2-20x.
If the plan is to transition into PE then the salary doesn’t matter. It’s almost a prerequisite to get experience in IB before moving over to PE and so you would need to start your career in banking to get your foot into the private equity door.
But if compensation and wealth is your primary concern, you’re more likely to become wealthy faster by starting a business, investing successfully in startups and/or on the stock market than by being an investment banker.
Hopefully has given you an insight into investment banking salaries and the different levels of compensation available.