Scraping By On $500,000 Per Year

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New York – Research analyst compensation took a major hit after 2000, correcting the excesses of the 90’s. Analysts today have lower compensation and lower expectations. Well regarded Wall Street analysts reportedly can still make seven figures, but compensation for senior Wall Street analysts is more likely to be around $500,000—in good years.

External factors are keeping a lid on analyst compensation: cut backs in the amount and coverage of Street research, concerns that high compensation will create perceptions of subsidization by investment banking, and a supply of hungry junior analysts. All of which explains why analysts defect to alternative research, setting up their own boutiques where they can make seven figures with a few dozen clients.

Apropos of analyst compensation, here is an excerpt from a thread on DealBreaker discussing the topic in the context of Bank of America’s layoff of its research staff in late January.

BofA laid off some of their best people today…top Analysts (II ranked 1-3) and top Salespeople and Sales Traders. Their CEO said earlier this week that he is “committed to inv. banking” but the reality is, he’s not committed enough to pay his top people. As such, anyone left will likely be leaving as soon as their annual bonus check clears (if they are getting one.) Ken Lewis doesn’t get it – BofA was on its way up with a lean and solid team.

Posted by: Director | January 23, 2008 01:55 PM

Director, not sure maintaining a stable of II ranked equity analysts would have been in BofA’s best interests in terms of not wasting money on non-core businesses when you can get a hungry jr analyst to cover the same stocks for $500k that you are paying a guy $3 million to cover

Posted by: Anonymous | January 23, 2008 02:23 PM

Anonymous-

Not sure what year you’re living in, but most of those top-ranked Analysts were actually getting paid under $1mm (some around $500k.) We’re not in the year 2000 anymore. And, like it or not…those seasoned Analysts are what clients want/need…they don’t need to speak to some Jr. person who hasn’t seen a cycle or understand how to read through mgmt. comments, etc.

It’s a sad day for BofA – to bleed the business of its best resources and talent. And not only those who may have happened to be making top money, but those who also were driving a lot of business for the firm.

The Jr.’s? Why would anyone care what they have to say….buys-side shops can do their own research….actually better.

Posted by: Director | January 23, 2008 02:27 PM

@ Director You think Kevin McCarthy and John Macdonald are making under a million? I doubt it. So far I am hearing just about guys on the research side I know get paid in the millions cut loose. And yes I worked in the industry in 2000 and I know that salaries took a hit but buddy that was 8 years ago and a lot of people have moved around and a lot of guarantees made as banks staffed up during the boom the last half decade.

Reg FD has all but destroyed the value of most of the analysts who have been around a long time anyway. Now most of the value in these guys is the marquis on his business card that gets him meetings with management to take me to. That’s what my firm pays for. And we will pay the junior as much as the senior as long as we get our meetings.

Posted by: Anonymous | January 23, 2008 02:54 PM

“seasoned Analysts are what clients want/need…”

HAHAHAhaha that is the funniest thing I ever heard

yeah there are a few good analysts out there but come on

Posted by: Anonymous | January 23, 2008 02:57 PM

The days of $1 million for research analysts are over, over, over. Pay absolutely tops out at around $500K now, and even that is rare. Now, never forget that analysts may get some limited opportunities to put their own money in private deals, and to invest for their own account, and they can improve their income that way. But as far as base salary + bonus, it’s very difficult to for a firm to pay over $500K without creating the appearance of analysts being compensated by I-Bkg revenue.

That said, I still am astonished about how cavalier firms can be about cutting loose good research analysts. Equity research has a –> r-e-a-l-l-y

Posted by: anotherguy | January 23, 2008 03:08 PM

Anotherguy, you are 100% wrong about comp.

This year $500k may be tops b/c of a poor year, but $500k is certainly not the ceiling in a “normal” year.

And investing for their own account? Firms don’t let you invest in anything that even smells like a company in your coverage sector. Cover pharma companies? Don’t plan on being able to invest in ANY health care companies.

Posted by: Anonymous | January 23, 2008 03:14 PM

most of the sell-side analysts I know who have 3+ years experience (senior) make in the $500k ballpark …. and some of the ones who have a decade+ in a bulge make $1MM+

replacing them with junior talent making ~$300k makes sense

Posted by: Anonymous | January 23, 2008 03:20 PM

Maybe I was too unilateral. Let me put it this way. I would argue that AVERAGE comp, from year to year, in excess of $500k is rare among the senior analysts I know in research. If someone’s sector has a stellar year, I suppose they could edge above that. But I think the days of a great analyst getting over $500K, let alone over $1 million, in most years, year-in year-out, are over. If people think that’s definitely not the case, I’ll have to circle back with some of my friends and get a reality check.

Remember, many of the best analysts have left research (and gone to I-Bkg, or hedge funds) for just that reason. Compensation just isn’t like it was in the old days. An awful lot of sectors are covered these days on the sell-side by analysts with 5-10 years experience who do not command huge pay packages, and a lot of the highly paid, high-reputation “lions” of the field are long gone.

That said, as I started to say before [text got cut off] I still am astonished about how cavalier firms can be about cutting loose good research analysts. Equity research has a really long apprenticeship compared to many other areas, and it’s extremely rare for junior analysts to be effective in the first few years after they get promoted.

Posted by: anotherguy | January 23, 2008 03:24 PM

I happen to know several people who were made senior analysts in the past few years who are already making a decent amount over $500k but not 1 million covering a range of sectors from substantial to niche. Most of them do not feel that the $1 million mark is too far out of reach, probably just a matter of jumping to another firm during the next up-leg of the cycle.

I do agree with anotherguy’s comments about the long apprenticeship, but there is definitely still fat in the system. And many good young analysts have emerged who will still have jobs (even at BofA)

and @3:16 no hot chicks dont get laid off are you joking? dudes and busted chicks get laid off.

Posted by: Anonymous | January 23, 2008 04:20 PM

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