As we approach the end of the first quarter, we have noticed that M&A advisors are back in action and business is reactivating. Banks are adjusting to the new tax regulations and are dealing with the fact that they lost or let go of many people last year. Now they are recruiting again and are feeling the stress of the shortage of people.
We have seen 
evidence of this in the significant increase of base salaries, especially for the associate pool. Many banks have readjusted their base salaries to guarantee a minimum fixed income. We were surprised to see increases of 23% to 75% for 1st year, 2nd year and 3rd year associates, respectively.
The bonus range has also increased at this level. Associate bankers are receiving bonuses from 90% up to an unprecedented 230%. Of course the range varies from bank to bank, but the reality is that they are trying to make sure that their associates do not suffer from the new tax regulations and are not only readjusting the base salaries, but also bonuses.
The way bonuses are structured is also changing. We are finding out that some banks are paying partly in cash and partly in long-term stocks at the associate level, which we had previously seen only at more senior levels. The cash component ranged between 65% to 75% and the stocks had a vesting period of 3 to 5 years.
Interestingly, associates acknowledge that they are an asset that is now scarce, especially the good ones. And even though their bonuses were part in stock, they are feeling very pleased about their new compensation levels.
So how does this affect the private equity firms?
Some of our clients have had to adjust the salaries for their private equity professionals, in particular if their staff had backgrounds at the highly paid banks and have ex-colleagues whom they might benchmark against. Private Equity firms are interested in retaining their talent, but they had to deal with the fact that in many cases the new salary structure for banking associates is overlapping some of their more senior professionals'. The challenge will be to either find the perfect balance of salary increase for junior hires without an overlap with senior professionals’ compensation, or to adjust salaries at all levels at the firm.
Having said this, this year we might be experiencing a tendency of base salaries increasing at associate levels and above, something that we have not seen in the previous years.
If you are interested in discussing this in more detail please contact us on 0207 747 7882
Maria Nieto – PER
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