15 May 2018

The real reason analysts should still leave investment banks after just two years

Goldman Sachs made headlines in 2012 when it announced that it was ending its strict two-year analyst program. Goldman said at the time that the move was meant to “emphasize the longer-term career opportunities” for those who joined the firm directly out of undergrad. At least one report suggested the bank was simply sick of seeing its best analysts poached by the buy-side well before the end of the program. Either way, other banks followed suit, and soon the “third-year analyst” became a somewhat uncommon job title. It’s also become one you probably don’t want on your resume.

The latest compensation figures from Wall Street Oasis tell the tale. Second-year analysts at the 10 largest bulge-bracket banks took home an average of roughly $149k in salary and bonus between 2016 and 2018. As for those who stuck around for one more year as an analyst? They made the exact same, both in salary and bonus. Another year of seniority and another year of 80-100-hour weeks won’t earn you a single dollar, it appears.

People within the industry aren’t surprised. “In today’s world, if you aren’t getting promoted to associate – at least in name – after two to two-and-a-half years, there’s a reason,” said one New York-based managing director who asked that his firm remain anonymous. Banks have had their hands forced after seeing much of their elite junior talent walk out the door in recent years: the people who aren’t promoted are the people they can dispense with.

Indeed, Goldman Sachs began promoting some analysts at the two-year mark back in 2015, despite acknowledging at the time that “candidly, it takes more than two years to figure out” whether banking is the right career, according to Goldman president and soon-to-be CEO David Solomon. The firm introduced third-year rotations where young bankers were given the title and likely commiserate compensation of an associate while they floated between both roles.

Goldman wasn’t the first bank to implement such changes. A year earlier, Citi reportedly rolled out an accelerated analyst promotion program that also set the threshold at just two years for top performers. It even began promoting first-year analysts to second-years after just six months. UBS implemented a similar strategy around the same time. Now, most banks have two year analyst programs for high performers at the very least.

The victims of this analyst program syncopation are the analysts who don’t make the cut at year-two, but who stick around anyway.

Interestingly, the same trend is even more pronounced in consulting. Second-year analysts actually make more ($93k) than third-year analysts ($91k) at consulting firms, according to Wall Street Oasis. The same can be said in private equity, where second-year analysts took home around $3k more, on average, than third-years with the same title. It seems longevity as an analyst is not necessarily a good thing: if you don’t get promoted, you’re going to plateau.