The End of the Bonus Culture Is Coming to Wall Street?

2008 was a shit show. We lost around 80% of all AUM in the space of a single month. Earned it all back in 2 years (40:1 leverage is a bitch when the market turns and what youre holding isnt liquid).

I now work at a firm that primarily operates mutual funds. Far less stress, but far lower performance of the funds. The MF is far more cobservative.

The great hedge funds look great, probably mostly due to survivorship bias. The ones that last are mostly lucky (although there's some strategy there).

Some of the big losers are also remembered. Such as Brian Hunter and Amaranth (fun read, look it up. Single trader blew up a 9 billion USD hedge fund). I also remember when someone taped a $2 bill to the front door of Bear Stearns when their stock price dropped below $2.

That said, I put in long hours over the years I was at the hedge fund. 80 hour weeks were expected. Did 6 months once of 100 weeks (only went home every other day). The only carrot to do that was the bonus, which for backoffice IT was was 20-25% of my base salary. I bought a pretty nice car with my last bonus. My bonus was certainly a far, far lower percent of my overall comp than the traders, but that bonus was huge for me. Also, my base salary was likely higher than the traders.

It's possible they'll do it in a specific area that isn't where everyone is (or that is where most people are not). I'd argue that we would be collectively better off in that case.

If that's the case, wouldn't it make sense to offer a 'stable' higher salary to an employee, and then sack them when it's financially beneficial to the company? I think the company does indeed have a concern with that - it becomes known that a particular company just thins the ranks every 18mos, and they'll have fewer folks lining up to take jobs.

On the other hand, even if the salary is lower, an employee can be more confident in keeping at least a modicum of income in lean times, and can also 'compete with colleagues' when bonuses are available. The perception (of the employer to the employee) is valuable to some extent.

When I was at university, the people I knew who wanted to work in finance seemed to be planning to work stupidly hard for some number of years and make a load of money and then retire. So maybe an alternative reason is that many people choose to retire at a relatively young age. But those people didn’t exactly have much actual experience in investment banks and so maybe they were just wrong or maybe those ideas are more predominantly held by people who are keen on investment banking while in university than in investment bankers at large.

Or maybe the old people all turn up at a different time or spend all their time meeting with clients outside their office (or half the time with clients so they arrive at the office at weird times), so you just don’t see them if you watch.

To be clear I don’t want to suggest that I disagree with what you say, just that there may be other forces at play than a bank’s desire to fire senior staff.

RSU comp can be quite competitive when you take those factors into account.

As for the stress and greener pastures bit, really you aren't wrong.

If you survive 4 years, then you get into the really well paid positions with 300K bonus a year being common. I have seen 2 scenario unfold: either the 4 previous completely ruin your value system, so you are either a complete asshole or addicted to a life of excess that keeps you in the system. A few will get promoted to hire levels yet and enter a weird world of mostly networking.

In rare circumstances, generally the one lucky to have a good and sane social circle before going into the grinder, you retire at 30 with several millions in your bank account.

I also know another new grad recently hired at Hudson River Trading, and another new grad recently hired at Jump Trading. Both are earning over $400k per year, but they work 45 hour weeks. And since RenTech has been mentioned in this thread: the people I know there have wonderful work life balance.

I have found that most popular conceptions of bad work life balance in finance apply to banking and sell side, not to the buy side. Working as a developer at a bank usually sucks, both financially and culturally, in my experience. Not always, but commonly. Working at a hedge fund can be very nice both financially and culturally.

One of his teen daughters said, when asked how she felt about her dad retiring and being home all the time, that it was ok because he is “nice” now. She went on to explain how her primary memory of him over her youth is that he was always “mad”.

I'm not being facetious. With anything trading-related, a big part of having the ability to make three million dollars more-or-less "on your own" is to have tens of millions of dollars to sling around, plus a good idea of the manner in which to sling it. So a firm will give their people a couple million in buying power and then tell them to go make an X% return. Those that can do so are compensated.

The downside, as I have it, is that the "work-life balance" is, as you mentioned, non-existent and also immensely stressful. Plus, having that kind of money in your 20's can be a problem all on its own.

Trading/Sales is normally 6.30am start to 5pm-ish in the evening, which possibly drinks/client entertaining some nights after that. You probably have to spend a few years as desk gopher - coffees, doing the trade reporting admin no-one else wants to do etc. I don't think trading or sales typically work weekends. I think some may trade out of hours as well, but I think (in large IBs in the UK) that they are in the minority.

>what are the kinds of tradeoffs involved in these jobs that pay so extraordinarily well so early in one's career?

>Is it a case of spending your 20s 8am-10pm in the office, no weekends, no vacation, etc?

You'll be in the office for the bulk of the trading day. You will need to be available/online though not necessarily "working" around open and close (possibly from home, many employers are flexible about butt-in-seat hours). Early mornings are rare. Late evenings will be commonplace if your employer does not have their end of day routine down.

If the team you work with is on their game this business is basically a money tree and predictably with that comes a very good work life balance. I have no idea how much vacation these people take but things get very, very quite around basically every holiday so I don't think they're lacking.

>Or, if not, then what's the path into a job like this? Are they simply 0.00001% level brilliant people, lucky, well connected?

Some combination of all of the above and being in the right place at the right time. These are smart people who understand finance, understand tech and understand the implementation. The algorithmic arms race isn't all that fast but the competition is stiff enough that you need to have all your T's crossed and you I's dotted to make money. Have you ever considered buying a microwave link because the fastest fiber money can buy is too slow. That's the level to which everything is built. People roll their own implementations of protocols because the off the shelf ones aren't optimized for what they want to do. Some of these firms reverse engineer the topology of the exchange's computer systems (by sending various orders and carefully analyzing the responses) in order to gain a competitive edge. This stuff can get crazy.

A lot of these firms need to stay under a specific headcount for legal/compliance reasons and when you need to cram that level of competency in all those skills into very few people they obviously wind up being exceptional (in the literal sense) people and they are compensated accordingly (because supply and demand).

A lot of it is about jumping through hoops but also I think a lot of people who "overachieve" just started young.

I knew people who knew they wanted to be lawyers from age 12 and were finding ways to do work experience from that age.

Similarly, I know many people who were coding from <small age>. (Maybe on the BBC micro, or learning BASIC or learning Java for Minecraft, take your pick).

I have also known people managing personal investment portfolios, and pianists sinking 50 hours per week practising when they were 8 years old.

My personal favorite (because it concerns people close to me) are two people who have instinctively honed the skill to sell and have been selling in some shape or form since they could essentially talk.

When it comes to these "prestigious" type jobs, I think a lot of the people who did well and got the jobs had been prepped a long time in advance. Quite a lot of it is worldview/personality grooming that happens from the high school you go to and your parents but less about direct connections because there are very few grad-level people who get blatant nepotistic hand-me-outs at the big companies you've heard of. Though coaching and interview prep probably does probably abound.

That's not to say it's too late in life to try learn something new, but inevitably life takes over (relationships, and kids).

So less a term used as a value judgement and more a term with contextual meaning in this topic (IMO).

Presumably these organizations have worked out that they can afford to pay their staff this and that it is profitable to do so, in the same way that FANG can pay their engineers pretty well too.

Meanwhile, the median US household income is $56,516 for two adults...

In most trading shops it's becoming more difficult to estimate the contribution of a single individual because technology is more important than before, and plays a role in how competitive you are. That doesn't make them any less talented, educated, hard-working, etc. It just makes it more difficult to know their exact contribution. Which means that their compensation will not necessarily fall down, but will become less performance-based.