Investment banks use honey, money and worry in attempt to retain juniors

Investment banks are using both the carrot and the stick to ensure that their junior talent doesn’t depart for rivals, hedge funds or private equity firms.

U.S banks on Wall Street are raising base salaries for all junior analysts by 20-25%, even if foreign rivals like Credit Suisse, UBS and Deutsche Bank have yet to follow suit. While this is broadly acknowledged as being reflective of the buoyancy of the job market at the junior end, it’s also a method for banks to convince the best and brightest graduates to work 100-hour weeks at their firm rather than heading to Silicon Valley or into the welcoming arms of Google.

So far, so obvious. However, less palpable is the internal wrangling of investment banks to ensure their best analysts don’t head for the door. Traditionally, it’s only the top of the class who make it into private equity or hedge funds after a couple of years in investment banking, and these, of course, are the employees the banks are fighting to keep.

Analysis by executive search firm Glocap suggests that banks are employing a number of methods to ensure their analysts don’t depart.

Firstly, bonuses as well as base salaries are heading up for junior recruits – but only for top performers. While bonuses have remained flat for analysts in the bottom and mid-level of performers, those at the top have seen 10% increases this summer. First year analysts at the top of the class received $65-75k in bonus payments on top of their $70k base salary, says Glocap, up from $60-70k last year, while second year analysts got $75-85k, up from $70-80k in 2013.

Secondly, banks are making the career path for top analysts more evident and alluring. Analysts are being offered promotions to their third year after just one year on the training programme, suggests Glocap, rather than late into their second year in an attempt to quell their desire to move to the buy-side. Analysts wondering whether to accept the bump up to associate level are also being offered the job earlier, it says.

Finally, there’s the stick approach. Increasingly, investment banks are warning their analysts not to interview with competitors, private equity firms or hedge funds with the threat of dismissal looming large if their potential infidelity is uncovered.

Is this all likely to work? Perhaps, but despite the pay rises for junior bankers the buy-side is still offering more. Hedge funds offer base salaries alone of $100-125k for entry level candidates, which outstrips banking salaries for the first three years. What’s more, a shortage of candidates for these hedge fund roles, together with banks’ base pay increase, is likely to increase the pressure on hedge funds to increase pay even further, says Glocap.

Investment banking analyst comp for 2014: