Wall Street Tries to Lure MBAs Back with Higher Pay Packets

Starting about two years ago something an MBA might call a ‘monumental paradigm shift’ began at US business schools: suddenly, the investment banking jobs that propelled generations of students into MBA programs, didn’t seem to have the appeal they once did. Big Wall Street banks were slashing salaries, bonuses, and headcount, and ambitious young MBAs who would have killed for a banking job a few months earlier were opting for consulting or corporate finance jobs instead.

Another shift now appears to be in the offing. With the best b-school finance talent headed for far more lucrative careers at hedge funds and private equity shops, the big Wall Street banks are scrambling to win the war for talent by offering first-year analysts and associates double-digit increases in their salary offers and shorter working hours.

Bloomberg News reports that Goldman Sachs, Bank of America, and Morgan Stanley are all planning to boost salaries for some employees by about 20%, citing people with knowledge of the plans, while JPMorgan Chase and Citigroup are considering similar moves.

At the same time, many of the banks are under pressure to cut back on their notoriously long hours, which an inquest found may have contributed to the death of a 21-year-old Bank of America intern in London last year. Moritz Erhardt suffered an epileptic seizure after working several all-night shifts in the days leading up to his death. Bloomberg reports that Credit Suisse, Bank of America and Goldman Sachs have all encouraged analysts to take time off on weekends.

Fewer MBAs are taking finance jobs these days. At Harvard Business School, the number is down to 27% in 2013 from 42% in 2006, and at Wharton the figure is down to 38.5% from 42.5% in 2009. London Business School, INSEAD and other top European schools are seeing similar declines.

Among those MBAs who are taking finance jobs, the number seeking out positions in investment banking is down, while those pursuing hedge funds and private equity shops are on the rise. And no wonder: hedge funds and private equity jobs pay considerably more. At Harvard Business School, the median base salary for members of the Class of 2013 who took investment banking jobs was US$100,000, with other guaranteed compensation adding another US$12,500. Hedge funds paid US$135,000, plus an additional US$72,500, while private equity jobs paid US$150,000, with an additional US$135,000 on top of that.

The pay raises for investment banking jobs appear to be targeted for the most part to those with the title of analyst or associate, the typical entry-level route for new graduates of MBA and undergraduate business programs.

But it’s unclear if the bigger salaries are showing up in offers made to summer interns at top MBA programs, and if they are if they’re having the desired effect. Requests for interviews with career services officials at several schools where many MBA graduates take Wall Street jobs –including HBS, Wharton, Columbia Business School and New York University’s Stern School of Business – were declined.

Wall Street “wants people to say yes”

But at one school, Vanderbilt University’s Owen Graduate School of Management, the impact of the Wall Street pay raises has been dramatic. Tami Fassinger, Tami Fassinger, the chief recruiting officer who oversees Owen’s Career Management Center, said nearly half the first-years who worked summer internships in financial services came back with offers that are running about 20% higher than last year.

One student, who interned at a top investment bank, received an offer for a private wealth management job when her internship was over, and three weeks later the bank increased the offer by 25%. The bank added another US$10,000 onto her US$40,000 signing bonus if she signed immediately, which she did. And the student is not the only one.

“They just came back and changed their mind,” Fassinger said. “They don’t want people to mess around. They want people to say yes.”

Fassinger said that historically about 25% of the graduating class typically takes jobs in financial services, but less than 20% of the first-years worked summer internships in the industry this year – a sign that interest among MBA students in finance jobs is shrinking. But she says the generous pay packages being offered this year may very well reverse that trend.