Meredith Whitney has commanded redundant bankers to recalibrate their pay expectations. We suggest a 35-40% cut

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The big news yesterday was Meredith Whitney. Meredith, known for her correct call on the sub prime crisis and Citigroup in 2007, suggested that investment banks have another 50,000 job cuts to go. Anyone already out of the market must prepare for this, said Whitney. Instead of sitting around, waiting for another job that pays well, she said they need to, "recalibrate their expectations."

Specifically, she said they need to: "take whatever they can get."

If you're out of the market, sitting around or not, this is going to be troubling. Do you really need to accept a big pay cut simply to get back into work? Most recruiters agree that six months out of the market is seen as acceptable. Taking a new job at a big discount two months in looks premature. Some recruiters say banks are actively seeking out the unemployed: redundant bankers don't demand guarantees and are a readily employable workforce in an environment where anyone still in a job is too risk averse to move.

At the end of June only 24% of the fixed income professionals who lost/left their jobs in 2011 had been re-employed. Jamil Baz, chief investment strategist of hedge fund GLG, thinks the eurozone crisis will continue for the next decade. If you want to get back into the market, early recalibration of your pay expectations may be advisable.

A 35-40% reduction?

How low should you pitch yourself compared to your previous job?

That depends upon how long you've been out of the market and upon the area you specialise in. However, pay is unquestionably falling. In the first half of 2012, most banks have continued to cut pay. Goldman Sachs and Credit Suisse cut the least, with 5% and 3% reductions year-on-year respectively. UBS has cut the most, with an 18% reduction.

Long term, SocGen analyst Dirk Hoffman Becking, says pay in banking needs to fall 35%. Based upon US stats, he says it's still significantly higher than its long term average, and needs to fall. The graph below illustrates the extent to which investment banking pay has risen since the mid-80s, fuelled (suggests Hoffman Becking) by regulatory laxity.

By pitching yourself early at 35-40% below your previous pay level, you will at least be assured of attracting recruiters' attention and may anticipate compensation reductions that will reduce industry-wide pay by this amount anyway over the next few years. You will earn less. But you will be employed.

Source: SocGen

What you can expect away from financial services 

Pitching yourself 35-40% below your previous pay level may seem crazy, until you consider how much you may be compelled to accept in another industry. The chart below, from the Office of National Statistics shows UK government figures for median weekly earnings by industry. They're not great - unless you work in mining and quarrying.

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