Silicon Valley is driving up wages on Wall Street

Checking up on… everyone.
Checking up on… everyone.
Image: AP/Mark Lennihan
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Big Wall Street banks are raising salaries across the board. JP Morgan and Bank of America are planning a 20% bump for junior employees, according to Reuters. Goldman Sachs is reportedly giving a similar pay bump. Citigroup is considering a similar move, and Morgan Stanley jumped the gun earlier this year.

This mass salary increase is not a sign of banking boom times, but an acknowledgement that there’s increasing worry about losing out on the best young talent to Silicon Valley or other jobs.

And there’s reason for banks to be concerned. A recent paper found that the number of US students planning to major in science, technology, engineering, and mathematics (STEM) fields increased by 48% from 2007 to 2011, with the majority of the gain concentrated in engineering. As early as their freshman year, college students are choosing a path that usually leads away from banking. Increasing numbers of elite MBAs are ditching finance for technology, and in a recent survey, MBAs put three major tech companies ahead of the first bank when listing their ideal employer.

Big, growing tech companies are cutting ties with Wall Street, even when it comes to mergers and acquisitions. They’re creating their own in-house acquisition teams instead of relying on Wall Street’s expertise, and to do that, they’re poaching big-name bankers.

Meanwhile, hedge funds and private equity firms use the entry-level bank hiring process as a de facto screen, cherry-picking the best of the banks’ young analysts and making them lucrative offers as early as a few months into their job—after the banks have sunk resources into training them.

Concern about this competition for young talent has prompted a series of policies designed to reduce the number of hours that newbie bankers work, and to make sure that they take the occasional Saturday off.

There’s some evidence of improvement—a recent survey of bankers found higher satisfaction with work-life balance, for example—but with a baseline work week that can be 80 hours, the new reality is still pretty rough.

Perception matters. Seeing friends flock to the Bay Area, where some companies sell for billions, makes technology look more appealing than a notoriously grueling Wall Street job. Perhaps the best sign of the sector’s success is the fact that technology has replaced Wall Street as a target for comedic mockery. It is also increasingly a destination for the ambitious.