Posted by Jack

Investment banks and private equity firms are engaged in a tug-of-war for analysts and associates, offering big pay rises, guaranteed bonuses and promises of rapid promotion.

Both investment banks and private equity firms under-invested in junior staff during the financial crisis and are only now feeling the problems. Investment banks are desperately trying to convince juniors to stick around – particularly at analyst level three and associate level one, according to recruiters – while private equity firms are having to work harder to prise them out. On top of this, investment banks are also trying to recruit externally, something headhunters suggest is increasingly difficult because of salary inflation.

“Some of the pay rises in recent months have been ridiculous, to the point where it’s become very hard to recruit junior bankers from the bulge bracket banks,” says Andy Pringle, managing director of headhunters Circle Square. “Analyst level three candidates are being offered £65-70k now in most firms, whereas a couple of years ago that would have been closer to £55k.”

Research by recruiters Dartmouth Partners suggested that the average base salary for analyst three investment bankers in London was £57k last year, with a £42k bonus. To compete, private equity firms are simply offering guaranteed bonuses, according to Pringle, which is further adding to salary inflation within the banks.

Investment banks are also offering more complex pay structures to third-year analysts once they make the move up to associate-level as a carrot to convince them to stick around, says Gail McManus, managing director of Private Equity Recruitment.

On average, the base salary for associates increases to £65k in September when they make the move up, she says, which is then bumped up to £79-82k in January in an attempt to convince them to stick around when private equity firms start circling. A £20k bonus is offered up front, but under the proviso that the investment banking associate has to pay the gross figure back again (despite only receiving the cash net of taxes) if they leave within a year.

To get around this, says McManus, private equity firms are instead targeting analyst level two candidates. This is not ideal, as they’re not the fully formed article, and as we pointed out previously private equity firms only hire the very best candidates . Apollo Global Management and Centerbridge Partners are two such firms adopting this tactic, but the war for talent has become so intense that bankers are receiving recruiting emails at odd hours and on the weekend.

More often, though, private equity firms are willing to buy out the bonus of junior bankers, says McManus. “Private equity firms will pay out the bonus that an associate would have to repay if they left the bank,” she says. “Investment banks are working harder and harder to keep their juniors – pay rises, guaranteed bonuses, reassurance of definite career progression within the firm.”

Private equity firms will make concessions for the right candidates including the bonus buyout and increasing base salaries, but generally they don’t want people chasing short term rewards. “You’d get £55-65k base moving into a private equity firm at the junior level, but they’re offering better long-term career prospects,” she says. “However, if the banks start fighting for their staff, the PE firms will fight back. No one’s frightened of getting into a bidding war in this market.”

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