How can you earn a six-figure salary at top investment banking firms without any experience
On average, a first-year investment banker makes a 5-digit salary, in the range of $70,000 – $90,000, while a 7-digit salary is considered above average and is difficult to achieve for most people in their careers. A six-digit cheque hits the sweet spot in the middle, which fresh graduates strive for and can actually achieve. However, is it possible in your first year, to start without any experience? Let us find out.
Break up of an investment banker’s salary
To understand how you can make six figures as a fresh investment banker, we first must understand how investment bankers make money. Unlike other industries, pay in investment banking is not a fixed, end-of-the-month salary. Instead, it is made up of several components and varies based on the parameters that define them. These components may vary from bank to bank, however, they are similar among the top global investment banks.
- Base salary
The most important but not necessarily the largest component of the overall compensation is base salary. It is “salary” in the traditional sense. It plays a huge role in the overall compensation as other components are usually a percentage of the base salary. The base salary is generally paid biweekly, is stable, and increases each year. An investment banker’s performance does not influence this component unless there is a serious lack of productivity.
- Stub bonus
Stub bonuses are a sub-component of the overall bonus structure but only represent a fraction of the usual bonus. These bonuses are paid to align employees with the financial year as investment banks recruit graduates in the middle of the calendar year. It is generally 20%-30% of the first-year base salary and is paid for a duration of four to six months.
- End-of-year bonus
The end-of-the-year bonus defines your overall compensation as an investment banker. You will earn this after a full year of working. Analysts, associates, and senior bankers receive this sum entirely in cash or in the form of ESOPs. Two of the most important parameters used to determine the ‘end-of-year bonus are deal flow and overall individual performance. Year-end bonuses are again represented as a percentage of base salary.
- Stock-based bonus:
Associates, positioned above analysts, at publicly listed investment banks receive a part of their total bonus in the form of company stock, vested over a defined period of time. As an analyst, in most cases, you won’t be eligible for stock-based compensation. However, a few of the young investment banks have initiated stock-based compensation for fresh graduates as well. In such a case, stock-based compensation could be a significant part of your year-end bonus.
- Signing bonus
When analysts accept full-time offers, they generally receive about $10,000 to $15,000, while associates receive $50,000 to $60,000 as signing bonus.
How to get a six-figure pay?
Now that you are aware of the compensation structure of an investment banker, you would realise that bonuses represent a big portion of the overall pay. A six-figure pay as a fresh graduate, in the first year, might not be possible solely based on your base salary but is certainly possible as your total compensation.
In order to earn this amount you must work hard on two things, first maximising your chances of getting a full-time job at one of the top investment banks and second, making a decent amount as bonuses. To get a full-time job you must focus on the following factors:
- An impressive educational background: as a fresh graduate l, you don’t have experience and all the necessary skills required to be a top-class investment banker. Therefore, having good grades and completing your education at a tier-one university can give you an edge. Having done abridged courses related to economics, finance and business always add to your resume.
- Required skill set and technical knowledge: You must be aware of the fundamentals of corporate finance, valuation methods, company and business evaluation, and the basic working of the industry. Moreover, you must have decent communication and presentation skills and must be willing to work hard and learn new things.
- Experience in the form of internships: As a graduate, it is not possible for you to have a lot of job experience, however, you can make up for it through investment banking internships. Internships allow you to learn business practices and show your passion for the industry.
To improve your chances of getting higher bonuses, you must analyse the compensation structure of each investment bank, individually. In general, your base salary is the biggest determinant of your bonus, since bonuses are disbursed as a percentage of your base salary. In addition, other bonuses such as signing bonuses vary by bank and can be higher if you have a commendable academic record from a top university and a strong resume.
Conclusion
In the US, the average base salary for analysts is between $75,000 and $95,000 a year, and they may receive $40,000-$60,000 in total bonuses, depending upon the base salary, year-end bonus structure and the signing bonus. This takes the total remuneration to $115,000 to $150,00. Therefore, dedicated a first-year investment banker could make up to $140,000 in their first year, without any significant experience. It is important to note that some experience, in the form of internships, could help you break into the industry and get that full-time job.
To learn more about investment banking and the working of the industry, check out the investment banking newsletter published by FMI.
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