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Investment Banking Salary - Why do Bankers Make So Much?

By Edited Nov 13, 2013 0 0

Investment Banking

Investment banking is one of the most lucrative careers in the world.  Often times investment bankers are regarded as overpaid, arrogant members of the working class.  However, before one makes such a bold statement, it is important to understand what it is that bankers do to warrant this type of large salary.  Expected salaries at each position can be found here.

Investment banking is a broad term that encompasses many different branches of high finance, such as mergers and acquisitions, sales and trading, capital markets, research, asset management and others.  At the core of it, investment bankers serve clients' needs in the capital markets.  This could involve finding a buyer or seller for a particular business, insuring against changes in foreign interest rates or structuring exotic derivatives that serve a specific investing goal.  Additionally, it could involve specialized research in a particular industry or geographical location.

The reason that investment banking salaries are so high is that clients expect the product to be perfect.  Imagine that you were orchestrating a transaction for a particular company that would have millions or billions of dollars in consequence.  With that amount of money on the line, you would want to hire the very best advisors, ones with a pristine reputation for hard work and excellence.  A mistake in this kind of transaction could cost the company a huge sum of money.  As a result, you would likely hire an investment banking firm, such as JP Morgan Chase, Goldman Sachs, Bank of America, or Morgan Stanley.

Bulge bracket investment banking firms, such as those listed above, know that clients demand perfection.  As a result, they recruit the top talent and pay a large salary.  Investment bankers, however, do not sit idly and wait to collect their paycheck.  On the contrary, investment banking demands 60, 80 or 100 hour weeks on a normal basis.  In addition, the workplace is incredibly competitive and full of pressure.  Employees from the top to bottom know that a mistake can compromise the current transaction and tarnish the relationship between the bank and the client.

In summary, while investment banking does command a large salary, it is not without cause.  Multinational companies pay a premium for detailed and complex analysis that is expected to be perfect the first time around.  Investment banking firms, in turn, recruit and pay a handsome price for employees to perform with this type of precision.



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