If you work in the financial services industry in a major financial centre like London, New York, or Hong Kong, you almost certainly earn more than the average person. You may even be in the fabled top 1%, which implies that you earn £160k ($211k) or more in the UK and anything from $100k to $490k (depending upon your age) in the U.S.. And yet, you are almost certainly not happy with your earnings.
Our recent compensation satisfaction survey, which had nearly 3,100 respondents globally, found that only a third of people in finance are satisfied with their pay. Another third are neutral. Another third are unhappy. More tellingly, 27% say their earnings don’t cover their “lifestyle requirements” – even though 58% of them are earning $100k+ (£75k).
U.S. median household income is $59k, so what’s up?
All sorts of things as it turns out. Mostly, though, it’s about living costs. It’s no coincidence that Mercer’s new cost of living ranking puts Hong Kong as the most expensive city in the world for expats, and that our survey says Hong Kong bankers are particularly unhappy with their pay. It’s an unfortunate truth that when you have a big job in finance, that job is probably in one of the world’s big financial services cities, and those cities are expensive places in which to to live and work.
“The problem with London is that you always feel poor,” says one buy-side employee earning between $100k and $200k. “- You pay tons of taxes, your flat costs a fortune and people around you are always super-rich. For sure, when you compare to the normal world, you feel lucky. But London makes you feel poor…”
A 25 year-old Morgan Stanley investment banker earning an equivalent amount says he has nothing left by the end of the month. “It’s not about fair pay – the sh*t is prohibitively expensive,” he complains. “Taxes, living in London and not sharing, occasionally going out with a modest restaurant check. This wipes all the earnings out and it’s not a luxury lifestyle by far.”
One banking junior in London said he spends 60% of his pay on rent: “I need a flat in a relatively central location…No further than zone three – and my pay needs to be higher to reflect this.” Another London banker said he can’t get a mortgage as the, “mean property price in my area is over 10 times my salary as a sole buyer.” A London credit trader who described himself as, “budget conscious”, said he’s sharing a flat for the sake of affordability.
If it’s not rent, it’s childcare, and then as children get older it’s school fees. A J.P. Morgan technologist who describes himself as earning between $200k and $300k says he needs a 30% pay rise: “This is by no means a luxury lifestyle. Paying a mortgage and nursery fees for two kids is way above my level of compensation.” An HSBC rates salesman says his school fees are “very expensive,” and a Deutsche Bank quant says a combination of school fees and medical bills are wiping him out.
With a large proportion of finance pay deferred, high earners also complain of cash-flow issues – especially if they work in areas like private equity, where carried interest is often paid over years. One Mayfair private equity employee earning between $500k and $750k said he needs his salary to double simply to cover his cost of living because, “the deferral is far too long.” Lower earners struggle more: a junior earning less than $100k at an asset management firm says he’s in debt to the tune of 22% of his salary: “My bonus will clear it, hopefully. Maybe next year I’ll be above water.”
Irrespective of their quantum, most respondents to our survey say they’re not paid fairly (only 45% said they feel justly remunerated for what they do). This is partly because it’s not easy to feel grateful when you can see people earning far more than you (“How come front office people are still paid more than engineers?”, asks one technologist). But it’s also because people in banking often work long hours and feel that high pay is their due. “The pay doesn’t really cover the amount of time, effort and stress that’s required to ensure you can outperform the market,” says a trader. “I’m paid above the street for my seniority,” says one banker. “But then I do four jobs simultaneously.”
Underpinning everything, though, is the notion that living costs are rising and that pay is not keeping pace. Quants are comparatively happy with their compensation – maybe because theirs is a growing profession. Traditional salespeople and traders are less enthused.
“Trading is a dying art that I got into too late,” reflects one Goldman Sachs macro trader. “Desks are getting smaller, job-seekers have more experience and are willing to work for less, buy-side traders are having to up-skill just to stay relevant and to allow them to add value beyond execution.” Instead of human traders, he says banks and funds are allocating budgets to electronic trading, technology and compliance: “People like me are less and less relevant.”
In the circumstances, higher compensation is out of the question. So too is downsizing. Most respondents to our survey say they need at least $100k to get by, although some say they need significantly more. “Working 12 hours a day with all the stress that entails, kids at school and being able to afford a flat somewhere in a place that a banker could afford 10 years ago? Let’s be honest, the break-even lifestyle is around £300k ($400k) net,” says one J.P. Morgan commodities trader.
Not everyone is sympathetic, though. “Anyone who lives in London and earns £130k or more and thinks they are underpaid needs a reality check,” says one banker. “It might be nice, but no one needs to earn more than that.”
Do you agree?
Have a confidential story, tip, or comment you’d like to share? Contact: sbutcher@efinancialcareers.com
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