It used to be when an investment banker hit the age of 55 or so, he would take his millions and retire. But with deferred compensation and other cuts in pay in recent years, older bankers are staying on the job longer, according to a handful of senior bankers at major US and European banks who spoke to Quartz. That has caused crowding in the upper ranks, leaving less room for promotions among younger bankers. Several bankers say that has become a problem at their firms, where they want to groom the next generation of leaders but there is less room for them to move up.
Banker pay has been under intense scrutiny since the financial crisis. Scandals such as the interest rate rigging incident at European banks, or the $6.2 billion trading loss at JP Morgan, have put further pressure on bank pay. Most of the major banks have responded by capping cash bonuses, deferring compensation or clawing back pay from executives.
In many instances, if you leave the bank before the deferred compensation period, you lose that payout. Also, some of the bonuses are made up of company stock, which many bankers were given at higher prices, leaving them underwater today. Bonuses paid in stock may be deferred as well. Experienced bankers can receive base pay of about $300,000 to $400,000, and bonuses of $3 million to $5 million. But the value of those bonuses overall has been cut in recent years.
“Guys like me would’ve been gone by now, but I’m not going anywhere and neither are many of my peers,” said a senior banker at a European firm.
Many of these senior bankers take on titles such as vice chairman, but the positions usually don’t come with specific job descriptions or responsibilities, sources said. Some still make a lot of money for the bank given their longstanding relationships with certain clients, while others essentially are left alone to do what they want. Even though they’re not always productive, banks keep them around as a reward for their past work, and because they’re reluctant to push them out.
(As we’ve noted previously, bankers have different responses to the new compensation climate. Some are dealing with lower pay by working shorter hours. Others are proactively leaving some of the storied investment banks for posts elsewhere.)
One way to deal with the bloated upper ranks is that some banks have become more strict in their promotions standards for younger staff. Before, it wasn’t difficult for most junior bankers to reach the rank of managing director if they did an adequate job. Now they have to work harder for what will likely be less pay than their predecessors received. Last year, Goldman Sachs chose the smallest number of bankers to become partners in years.
When we asked several older bankers whether they would recommend that new college graduates go into their business, most of them said no. While the two-year analyst program that most banks have is seen as good training, senior bankers said the reward-to-hard-work ratio is no longer worth it. “I would tell them to do something else that is more fun,” one banker said. “This is a tough business and it’s gotten even tougher.”