Why it’s strange that investment banks feel compelled to increase graduate pay

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If you manage to secure a place on an investment banks (front office) graduate scheme this year, you will be paid £5k more than the class of 2011. Now, according to a report in the Telegraph, the average starting salary is £50k, up from around £45k last year.

Why? It’s the old problem of “reputational damage” affecting the investment banking industry. Applications are falling, the best and brightest graduates are more likely to gravitate to competing sectors like law. Investment banking therefore has to fall back on the one advantage it’s always offered – more money.

Except that attracting applications doesn’t really appear to be much of a problem. According to research by High Fliers, there were 82 applications per place, which is competitive enough. However, the Association of Graduate Recruiters’ annual guide paints an even bleaker picture – with the number of places falling, 142 people are applying for every vacancy within investment banking, it says.

What’s more, the majority of places are going to interns. This is not unusual, but more with banks’ headcount fluctuating throughout the year, this route more than ever is the quickest to a full-time place.

So, what’s the real reason? It could simply be an insurance policy; extending the pay gap between its nearest rival to ensure that the bet graduates continue to gravitate towards the sector.

Or, it could be because bonuses are down. As we reported last week, analyst bonuses are down by 15% and more people are eyeing private equity careers earlier than ever. Increasing the starting point for salaries ensures that investment banks stay one step ahead of the competition.

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