Is Investment Banking a Good Career Option Based on the Average Investment Banker Salary?

Banking

How much Salary can you Expect as an Investment Banker in the United States?

Investment banking is one of the best-paying careers for young professionals. Banks hire investment bankers straight out of school and pay them more than $100,000 for their starting salaries.

The salary investment banking pays rarely reflects a person’s age. You can easily get a 35-year-old earning more than $200,000. The highest-paid investment bankers earn over $244,000 annually, while the least paid ones earn below $104,000. The average salary for U.S. investment bankers is $157,830.

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However, investment banking salary is not jaw-dropping when choosing hourly rates.

Many hourly-rate investment bankers work more than 100 hours a week. The hourly wage for these analysts and associates ranges between $25 and $30 per hour. This salary is within the range of the lowest investment banker salary per year.

Structure of investment banking salary

Investment bankers’ salaries have five main components.

1. Base salary: It is what you get through a paycheck. The base salary of investment bankers remained unchanged for years before 2021.

2. Stub bonus: Analysts and associates get stub bonuses for 6 months after they start working. That’s because they join the workforce in the middle of the calendar year after graduating from universities and MBA programs. The stub bonuses are usually 20-30% of the base salaries in the first year. However, some companies pay up to 50%.

3. End-of-year bonuses: Every investment banker starts to get these annual bonuses after they complete a full year on the job. People who are new to the company get 100% cash bonuses. However, as their time at the company lengthens, they get an increasing percentage of stock and deferred compensation instead of cash. Later associates and V.P.s could get between 20-30% stock/deferred compensation with vesting periods of up to 3 years. The bonus for senior investment bankers could be as much as several times their basic salaries.

4. Signing bonus: It only applies to graduate Analysts and Associates when they agree to full-time offers. Analysts get between $10-$15k, while Associates receive between $50-$60K.

5. Benefits: You can get vacation days, health insurance, and 401(k) plans. These investment banker salary perks make more sense in the U.S., where the healthcare system is not as robust as in European countries.

Investment Banker Salary Categories

There are five main categories of investment bankers. Let’s look at the investment banker salary from the least paid to the highest-paid people.

Level 1: Analysts

They are entry-level professionals that assist associates with debt and equity offerings, valuations, mergers and acquisitions, leveraged buyouts, etc. They perform financial analysis, build financial models, perform due diligence, conduct research, create presentations, and perform secretarial duties for associates.

Analysts usually come from colleges and get into two-year programs. Analysts continue working in the same position for the third year or get promoted to associates. At the end of two or three years, associates leave to get MBAs or look for greener pastures.

The base salary of associates in 2021 ranged between $100K and $110K.

However, in January 2022, most banks increased base salaries to $110K for first years and $125K for second-year analysts.

2021 bonuses ranged between $75K – $115K for first years and $105K – $145K for second years.

In terms of total payouts, analysts earned between $150K and $300K.

Level 2: Associates

Associates are the footsoldiers in an investment banking company. They process most of the entry-level number-crunching and make the initial financial models. Associates relate more closely with clients by preparing pitch books and writing deal proposals. They also go to meetings between the deal team members and clients.

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Most associates have law or advanced finance degrees. They often come from top MBA programs.

In 2022, banks in the U.S. increased the associates’ salaries to between $175,000 and $225,000. Boutique institutions sometimes pay above or below this level.

The bonuses varied substantially across different banks. For instance, some associates earned around $300K in total compensation while some got at much as $600K.

One of the notable trends of 2022 is that even elite boutiques are giving less cash in end-year bonuses. They are gradually increasing the percentage of stock and deferred compensation.

Level 3: Investment banker salary for Vice Presidents

The VP is the juniormost senior banker in an investment bank. They are the first to have a legitimate title and are allowed to have independent thoughts and opinions. Vice Presidents have two main roles: Managing client relationships; and completing pitch books.

In a typical deal, the V.P. coordinates associates to develop a pitch. The V.P. spends their day constantly speaking to clients. They delegate most duties like a team coach.

Vice Presidents earn an average base salary of $200,000. The amount is marginally higher than some associates, but take it with a pinch of salt because it’s just an average figure. Some V.P.s earn more than $500K base salaries. On the other hand, Vice Presidents earn bonuses that are between 150% and 200% of their base salaries.

Level 4: Directors

They are also called senior vice presidents or executive directors. A director is nearly at the top of the investment banking hierarchy. Some people spend their entire careers at this level. The director’s main role is finding new business. Some companies have low-ranking directors that they treat like superstar V.P.s and higher-ranking ones that are the sidekicks of managing directors.

The salary investment banking directors take home ranges between $500K and $1 million, exclusive of bonuses.

Banking

Level 5: Managing director

To become a managing director, you need a lot of time and experience climbing up the ranks. M.D.s have great authority and are responsible for the profitability of banks.

The M.D. keeps tabs on all deals and the political/economic climate. They rarely get involved with operations. Instead, they reward effective V.P.s and directors while setting aside ineffective ones.

The basic salaries of managing directors are between $1 million and $3 million. Bonuses depend on performance. An MD who hasn’t closed any deals could get a bonus of nearly $0. However, the bonus could be in the low millions in a good year.

Why does Investment Banking Pay so Much?

One of the logical conclusions is that investment bankers process large transactions that earn huge fees for their employers.

Additionally, investment bankers are intelligent, hard-working, and can work under tremendous stress. The military-rescue hierarchy also adds to the job’s stressful nature. The hours are also so long that most but the most diligent people can burn out.

Conclusion

It’s no secret why business graduates dream of investment banking jobs. Even though they are extremely demanding, the salary investment banking jobs pay is well worth the blood and sweat.

author avatar
Michael Solomich

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