Analysts are the grunts of 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 and 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. The unfortunate analyst that screws up or talks back too much may never get quality work, spending his days bored until 11 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 pitchbooks all the time.
When it comes to analyst pay, much depends on whether the analyst is in New York or not. On Wall Street, salary often begins for first-year analysts at $60,000 per year, with an annual bonus of approximately $50,000. While 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 and ample fodder to fund business school or law 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 or branch office of a Wall Street 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 bankers with whom he or she works.
Much like analysts, associates hit the grindstone hard. Working 80- to 100-hour weeks, associates stress over pitchbooks and models all night, become experts with financial modeling on Excel, and sometimes shake 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 more about the work getting done, and not about the guy or gal working away all night to complete it.
Usually hailing directly from top business schools (sometimes law schools or other grad schools), associates often possess only a summer's worth of experience in corporate finance, so they must start almost from the beginning. Associates who worked as analysts before grad school have a little more experience under their belts. 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, client contact, and bigger bonuses.
Associates are at least much better paid than analysts. A $95,000 salary generally starts them off, and usually bonuses hit $40,000 and up in the first six months. (At most firms, associates start in August and get their first prorated bonus in January.) Newly minted MBAs cash in on signing bonuses and forgivable loans as well, especially on Wall Street. Total first-year compensation can hit up to $200,000 for top firms. Associates beyond their first year begin to rake it in, earning $300,000 to $500,000 and up per year, depending on the firm's profitability and other factors.
Upon attaining the position of vice president (at most firms, after four or five years as associates), those in corporate finance enter the realm of real bankers. The lifestyle becomes more manageable once the associate moves up to VP. On the plus side, weekends sometimes free up, all-nighters drop off, and the general level of responsibility increases -- VPs are the ones telling associates and analysts to stay late on Friday nights. In the office, VPs manage the financial modeling/pitchbook production process in the office.
On the negative side, the wear and tear of traveling that accompanies VP-level 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 two 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 baby-sit company management on roadshows.
Directors and managing directors (MDs) are the major players in corporate finance. Typically, MDs set their own hours, deal with clients at the highest level, and disappear whenever a drafting session takes place, leaving this grueling work to others. (We will examine these drafting sessions in depth later.) 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.
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 well over the $500,000 level in the first year -- and pay can skyrocket from there.
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. It is important to realize that for the most part, MDs act as relationship managers, and are essentially paid on commission. For top performers, compensation can be almost inconceivable.
Investment bankers generally work in deal teams which, depending on the size of a deal, vary somewhat in makeup. Here, 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 generally called an I-banker.) Because the titles and roles really do not differ significantly 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.