Decoding Investment Banking Managing Director Pay: Part 1

Understanding what investment bankers make is not too difficult. A quick Google search will yield numerous search results describing pay for analysts, associates and vice presidents of each class. Because banking is a lock-step career, junior banker pay is relatively standard - pay bands with variability depending on position, level and performance. Junior bankers receive bonuses but these bonuses are based on company, group and individual performance. Only at the Director and Managing Director level does the number of deals and amount of revenue that one generates factor into compensation.

Outside of speaking to headhunters or asking bankers what they make, it is difficult to ascertain how much senior bankers make. However, due to UK banking regulation, we can get a good sense of what senior bankers are paid. UK regulation requires that financial institutions disclose what they pay to 'Material Risk Takers' (MRTs) who work in the UK. While MRTs may include other senior financial professionals such as traders, risk management leaders or other members of management, looking at MRT pay gives some sense of what MDs are making. Below is data showing what the four large US banks pay MRTs in the UK:

We see that the preponderance of MRTs at these banks are in the lowest bucket, roughly 40% of the total at each bank. The second bucket is 15-30% (highest at BofA and lowest at GS), and GS has the longest tail of compensation with MS following closely behind. Clearly, most MDs make <$2m annually (assuming roughly equal USD-EUR today), but the top 30% make >$2m and the highest paid (top 3-4%) bankers making >$5m annually. We would expect that US banking compensation is higher than in the UK given the much larger fee pool so we could assume a premium to these numbers. We will dig into US-specific numbers in our next post.