If you have managed to get far enough through the lateral recruitment process that you are starting to have conversations about a job offer, compensation and entry year then congratulations…you are nearly at the finish line. However before you get complacent there is something really critical that you need to negotiate…and that is your entrance year.
Negotiating the right entrance year is the most critical discussion you will have with the investment bank that you are looking to join before you start. It is far more important than the discussion you will have on wage or the team you will work in.
Hopefully this post will help you navigate this minefield of a discussion and help you understand why it is so important.
What do you mean I have to negotiate my entrance year?
Because you are entering with work experience you will not be starting at the bottom rung of the investment bank which is great for you. However the bankers will try and get you in as low as you are willing to go. If they can convince you to start as a third year analyst even though you have 8 – 9 years experience (I have seen this happen) then they are getting the benefit of your experience without you getting the benefit of a higher entrance level.
That being said…you will almost always have to take an experience cut when you join an investment bank as a lateral transfer. The one exception is if you are joining from another investment bank where your experience is directly comparable.
Why do you have to take an ‘experience cut’?
There are a few main reasons banks force you to take an experience cut when you do a lateral transfer into banking and I have outlined them below:
- You don’t have relevant work experience
- This is often the biggest factor. If you have been working in the legal field for 5 years but have had no experience modelling then the bank is not going to bring you in as a 5th year banker…you need to skill up before you are at the same level as people who have been working in the industry for 5 years
- I understand that this may not be fair as you have experience that the bankers don’t have but unfortunately this isn’t how the industry works
- You may have the right experience…but less than you think
- The people who tend to get most annoyed at having to take an experience cut are those who have the right experience (e.g. they have worked in valuations teams) but at the wrong places (e.g. accounting firms)
- This experience whilst viewed favourably is still cut because although you may have been working for 4 -5 years the chances are that you have only done as many deals and had the same kind of experience as a second or third year analyst
- As a rule of thumb I wouldn’t be surprised if a bank brings you in at 1/2 to 2/3 of the number of years that you have been working
- They want to make sure that you can do the junior jobs before bringing you in at a higher level
- Banks are incredibly hierarchical and the work that an associate does often does not overlap significantly with the work that an analyst does
- That being said an associate needs to be able to critically think about what an analyst does and be able to check and vet their work
- Banks will often argue that they need to make sure that you can do the job of a junior before they promote you
So how do you get screwed with these arguments?
Don’t these arguments all sound so logical and don’t they all make sense? Well yes they kind of do and you can see why investment banks view lateral transfers and entry years in that light. But that doesn’t mean that you’re not getting screwed.
As I’ve mentioned many times before…investment banks are incredibly hierarchical organisations. Once you are in the bank you are treated like everyone else at the same level and there are no opportunities to speed up promotions or to get ahead even if you are better than the others around you.
Although you have so much more you can add through your previous work experience you may still find yourself having to answer and listen to someone who is not as competent as you by virtue of the hierarchy.
Further your lifestyle improves considerably over time in investment banking. A second year associate’s life is light years better than a third year analyst so when it comes to the discussion of what year you should be entering…DO NOT BRUSH IT OFF!
This is especially true if the bank tries to run the ‘we are just making sure you can do the job’ argument which I mentioned above. The bankers may promise that they will look at promoting you early if you work out however it almost ever works out this way for a few reasons…firstly they know you’re unlikely to leave if they don’t promote you and more importantly secondly they don’t want to annoy their other staff who see you getting promoted early.
Negotiate, negotiate, negotiate
Don’t worry about negotiating your wage or benefits when you come into Investment Banking. Most investment banks have a set compensation structure which is tied to your level within the bank. The most important thing you need to negotiate is your entrance year.
Preferably you want to enter at as high a level as possible however given what I have said above make sure your expectations are realistic. You also need to have this conversation early. You don’t want to be going for a second year associate job and then get offered a second or third year analyst position.
Sometimes the bank will play hardball and not budge when it comes to your entrance year. In this case I would walk away. If you feel like you are getting the short end of the stick then walk away and try elsewhere (unless you think you’re not going to get a better offer in which case it comes back to the expectations issue I mentioned before).
I would not suggest working for a year then jumping to another investment bank. Once you are tagged at a level in investment banking other investment banks assume that is the right level and will not bump you up.
Don’t worry about not being able to land another investment banking job. The fact that you got a job offer from this bank means that others are probably going to be interested in you too (I have seen this happen several times).
Good luck and if you do manage to land the lateral transfer job make sure you read my tips on how to survive the industry!