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Pay curbs for banking execs

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Joined: 09 Dec 2008
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Schools: Kellogg Class of 2011
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Pay curbs for banking execs [#permalink] New post 04 Feb 2009, 05:34
The latest from Washington's intervention in the banking sector:

WSJ wrote:
Among the new restrictions being considered is a $500,000 cap on salaries for executives at companies that receive a substantial amount of government aid, according to a person familiar with the matter. Executives would be able to get additional compensation in the form of restricted stock or other compensation that is tied to the long-term health of the company.

Of course the devil is in the details, especially what qualifies as a "substantial amount of government aid", who is considered an executive and whether bonus/incentive pay would also be subject to the $500k cap.

My question to those considering banking: would this (if passed) affect your decision on which banks you'd want to work for? It seems to me that by creating price controls on labor, the government could cause some unintended consequences in terms of where talented people choose to work, with repercussions for the banks subject to the limits.
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Re: Pay curbs for banking execs [#permalink] New post 04 Feb 2009, 06:22
If this happens, my personal prediction is that you're going to see a huge outflow of top senior bankers over to firms like Jefferies, Houlihan Lokey, Greenhill, Evercore, Moelis, Perella Weinberg, etc. etc. Any firm that did not take government aid may be able to poach top talent and increase their size/reach, and may become a more desired employer than the former bulge bracket.

As far as me personally, I will go wherever I can get the best experience and the most exposure. If that happens to be the bulge bracket, and if I make $125-150K instead of $350K, so be it. If all of the dealflow is going to the firms I listed above, I will be looking at them instead.
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Re: Pay curbs for banking execs [#permalink] New post 04 Feb 2009, 06:42
If the above legislation passes, following things will probably occur:

1) Top Undergrad/MBA Talents:
Mostly indifferent since the starting salary/compensation is still attractive for entry level positions. Many will still choose to work at IBs (under new regulation) and use the opportunity as a stepping stone to a better opportunity after 3 to 5 years. (depending on job market, market environment and demand)

2) Top IBs will have Trouble Holding onto Top Talent:
Many firms had trouble holding onto their top talents during the boom years. Even without the above regulation, top talents left to open their own firms or to PE/VC/HF and other lucrative opportunities. However, the new regulation will probably boost this trend further. Top IB talents will use IB experience as many MCs currently use their M/B/B experience on their resume. Tenure @ IBs will be shorter. However, the question is: Will this new regulation impact majority of the IB employees? Some say that the new regulation will impact very few talents (maybe top 10% of the firm's "star" employees???) with top earnings track record. Not everyone at the bank makes that much money to be impacted by this regulation.
Re: Pay curbs for banking execs   [#permalink] 04 Feb 2009, 06:42
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