Find Out Why Bankers Need Those Massive Bonuses

Whatapp News

Stephen Lee

I am talking about investment bankers. Investment banking is high risk/high reward. The reward is obvious to most people, but the risk is not. Any investment banker who receives a large bonus in any given year did so because he or she generated a lot of revenue for their firm. They expect to participate in that, for two reasons.

The first is because investment banking is highly relationship centric. Bankers are expected to generate business — mergers and acquisitions, spin offs, corporate advisory, manager buyouts, etc. — not to wait for it to emerge. As relationships count, an unhappy banker who leaves the firm takes his or her relationships somewhere else. That includes starting boutique firms. If they do, that revenue stream potentially walks out the door with them.

The second reason has to do with risk. They expect to participate in good years because they know they will be quickly fired if they stop producing next year. That is investment banking — feast or famine. High reward when business is booming, and a ruthless culling of the herd when it is not.

Source: Quora