Depending on the firm, corporate finance can also be a tough place to work, with unforgiving bankers and expectations through the roof. Stories of analyst abuse abound, and some bankers come down hard on new analysts to scare and intimidate them. The lifestyle for corporate finance professionals can be a killer. In fact, many corporate finance workers find that they literally dedicate their lives to the job. Social life suffers, free time disappears, and stress multiplies. And those Armani suits aren't always so sharp looking - it is not uncommon to find analysts and associates wearing rumpled pants and wrinkled shirts, exhibiting the wear and tear of all-nighters. Fortunately, these long hours pay remarkable dividends in the form of six-figure salaries and huge year-end bonuses.
Personality-wise, bankers tend to be highly intelligent, motivated, and not lacking in ego or confidence. Money is important to the bankers, and many anticipate working for just a few years to earn as much as possible, before finding less demanding work. Analysts and associates tend also to be ambitious, intelligent and pedigreed. If you happen to be going into an analyst or associate position, make sure to check your ego at the door but don't be afraid to ask penetrating questions about deals and what is required of you.
The Deal Team
Investment bankers generally work in "deal teams" which, depending on the size of a deal, vary somewhat in makeup. For a mid-sized deal, a team is usually composed of an analyst, an associate, a VP, and an MD (managing director).
In this chapter we will provide an overview of the roles and lifestyles of the positions in corporate finance, from analyst to managing director. (Often, a person in corporate finance is called an I-banker.) Because the titles and roles really do not change between underwriting to M&A, we have included both in this explanation. In fact, at most smaller firms, underwriting and transaction advisory are not separated, and bankers typically pitch whatever business they can scout out within their industry sector.
Section One: The Players
Analysts
Analysts are the grunts in the corporate finance world. They often toil endlessly with little thanks, little pay (when figured on an hourly basis), and barely enough free time to sleep four hours a night. Typically hired directly out of top undergraduate universities, this crop of bright, highly motivated kids does the financial modeling and basic entry-level duties associated with any corporate finance deal.
Modeling every night until 2 a.m. and not having much of a social life proves to be unbearable for many an analyst. After two years, many analysts leave the industry. Unfortunately, many bankers recognize the transient nature of analysts, and work them hard to get the most out of them they can. Ironically, the unfortunate analyst that screws up or talks back too much may never get "real" work, spending his days bored until 10 p.m. waiting for work to come, stressing even more than the busy analyst. These are the analysts that do not get called to work on "live transactions," and do menial work or just put together pitch-books all the time.
When it comes to analyst pay, much depends on whether the analyst is in New York or not. In the City, pay often begins for first-year analysts at $40,000 per year, with a maximum annual bonus of approximately $20,000. While again, this seems to be a lot for a 22-year-old with just an undergrad degree, it's not a great deal if you consider per-hour compensation. At most firms, analysts also get dinner every night for free if they work late, and have little time to spend their income, often meaning fat checking and savings accounts with ample fodder to fund business school down the road. At regional firms, pay typically is 20 percent less than that of their New York counterparts. Worth noting, though, is the fact that at regional firms 1. Hours are often less, and 2. The cost of living is much lower. Be wary, however, of the small regional firm that pays at the low-end of the scale and still shackles analysts to their cubicles.
While the salary generally does not improve much for second-year analysts, the bonus can double for those second-years who demonstrate high performance. At this level, bonuses depend mostly on an analyst's contribution, attitude, and work ethic, as opposed to the volume of business generated by the barkers with whom he or she works.
Associates
Much like analysts, associates hit the grindstone hard. Working 80 to 100-hour weeks, associates stress over pitch-books and models all night, become experts with financial modeling on Excel, and sometimes lake their heads wondering what the point is. Unlike analysts, however, associates more quickly become involved with clients, and most importantly, are not at the bottom of the totem pole. Associates quickly learn to play quarterback and "hand-off menial modeling work and research projects to analysts. However, treatment from vice presidents and managing directors doesn't necessarily improve for associates versus analysts, as bankers sometimes care about the work done, and not about the guy working away all night to complete it.
Hailing directly from top business schools, associates usually possess only a summer's worth of experience in corporate finance, so they must start almost from the beginning. The overall level of business awareness and knowledge a bright MBA has, however, makes a tremendous difference, and associates quickly earn the luxury of more complicated work and better bonuses.
Associates are at least much better paid than analysts. A $75,000 salary starts them off, and usually bonuses hit $20,000 to $25,000 in the first six months. (At most firms, associates start in August and get their first bonus in December.) Newly minted MBAs cash in on signing bonuses and "forgivable" loans as well, especially on Wall Street. These can amount to another $25,000 to $50,000, depending on the firm, providing total compensation of up to $150,000 for top firms. Associates beyond their first year begin to rake it in. In the second year, associate bonuses range from $50,000 to $150,000. A typical second-year compensation package is $80,000, with a bonus in the $100,000 to $125,000 range.
Outside of New York, regionals offer first-year packages like 65-25-20. That is, $65,000 salary, $25,000 bonus after six months, and a $20,000 signing bonus, for total compensation of $110,000. For second-year associates, bonuses tend to range from $50,000 to $90,000 on top of a $70,000 salary at regional firms. Those associates that manage to land jobs with Wall Street firms but in a regional office really earn top pay, as cost of living drops dramatically outside of the City. Until the VP level, bonuses typically are rewarded based on job performance appraisals rather than profits of the group in which they are working.
Vice Presidents
Upon attaining the position of vice president, those in corporate finance enter the realm of real "bankers." The lifestyle becomes much more manageable once the associate moves up to VP. On the plus side, weekends free up, all-nighters drop off, and the general level of responsibility increases - VPs are the ones telling analysts to stay late on Friday nights, not vice versa. In the office, VPs manage the financial modeling/ pitch-book production process in the office.
On the negative side, the wear and tear of traveling that accompanies banker responsibilities can be difficult. As a VP, one begins to handle client relationships, and thus spends much more time on the road than analysts or associates. You can look forward to being on the road at least three to four days per week, usually visiting clients and potential clients. Don't forget about closing dinners (to celebrate completed deals), industry conferences (to drum up potential business and build a solid network within their industry), and of course, roadshows. VPs are perfect candidates to babysit company management on roadshows.
The formula for paying bankers varies dramatically from firm to firm. Some adhere to rigid formulas based on how much business a banker brought in, while others pay based on a subjective allocation of corporate finance profits. No matter how compensation is structured, however, when business is slow, bonuses taper off rapidly. For most bankers, typical salaries may range from $100,000 to $200,000 per year, but bonuses can be significantly greater. Total packages for VPs on Wall Street often hit the $350,000 level in the first year - and pay can skyrocket from there.
Directors/Managing Directors
Directors are the major players in corporate finance. Typically, MDs work their own hours, deal with clients at the highest level, and disappear whenever a drafting session takes place, leaving this grueling work to others.
MDs mostly develop and cultivate relationships with various companies in order to generate corporate finance business for the firm. MDs typically focus on one industry, develop relationships among management teams of companies in the industry and visit these companies on a regular basis. These visits are aptly called "sales calls."
Top bankers at the MD level might be pulling in bonuses of up to $1 million or more a year, but slow markets (and hence slow business) can cut that number dramatically. Average regional I-banking firm MDs may earn from $300,000 on up, with the ceiling determined only by the amount of business they generate. It is important to realize that for the most part, MDs act as salespeople, and are paid on commission. For top performers compensation can be almost inconceivable. For example, in 1999, Warburg Dillon Read hired health care banker Benjamin Lorello away from Salomon Smith Barney with a reported package of $70 million over five years.
