Banks are like water-filled balloons: if you squeeze one end to displace a bulge, it simply appears further along.
In the past 24 months, most large banks have introduced syncopated training programmes for their most junior staff. Analyst programmes which used to take three years now take two (J.P. Morgan ) or 2.5 (Barclays). At banks like Goldman Sachs, if you make it through the fast-tracked analyst programme and survive the subsequent associate programme it's now possible to make vice president (VP) within five years of starting out.
That, however, is the easy part. The real question is what happens next. And in many cases, the answer is nothing much. Hit the mid-ranks of an investment bank, and your career plateaus.
The recent study by strategy consulting firm Quinlan Associates highlighted the issue. Quinlan cited one bank that employed 200 people as executive directors in its regional equities business, but only promoted two to managing director in a year. The study suggested that frustration leads 17% of vice presidents to quit, compared to three per cent of managing directors and 11% of analysts. Junior bankers might be comparatively happy, but the same cannot be said for the mid-ranks.
Perversely, juniorization hasn't always helped. The reassignment of tasks previously undertaken by senior staff to cheaper juniors means some VPs complain of more responsibility with the same pay. At the same time, with analysts and associates constituting 50% of front office staff at some banks, VPs are on the hook for a lot of mistakes.
It's more than this though. One VP at a major bank in London tells us banks' mid-rankers inhabit a social and professional maelstrom: "VPs are at a crossroads, both in our private lives and our professional lives. In our private lives we're often at the stage of buying a house,or getting married, or starting a family. In our professional lives we have increasing responsibility but are still expected to do low profile tasks. We're trying to balance everything, and we need cash. This is when liquidity - cash bonuses - are most needed."
Most in the UK people would scoff at the notion that a banking vice president on a salary of £150k ($188k) could have cashflow issues. However, VPs themselves point to the fact that £60k of this disappears in tax and that they still need to live in close proximity to the City or Canary Wharf, both of which are expensive. In this sense, Deutsche Bank's decision to scrap bonuses for its vice presidents and assistant vice presidents is storing up problems for the future: mid-ranking bankers who can quit for more cash elsewhere are likely to jump.
VPs' frustration isn't just about absolute levels of pay though. As ever, it's all relative. Bonuses in London are now restricted to 200% of salaries, but that still allows for big variations and this is the stage at which high performers at the highest paying banks pull away from the rest. "You're in your late 20s to early 30s and you start to see all your school/college/grad school mates/colleagues making MD ahead of you," another VP says. "It's either that, or they exit to top private equity funds and hedge funds and get married and buy homes in wonderful neighbourhoods. It's easy to benchmark yourself, for the inadequacy to set in because of all the unfavourable comparisons around you and on your Facebook feed."
Short of paying more and blocking Facebook, what can banks do? One answer would be to forcibly purge the top ranks and create more opportunities for promotion. Top staff are going nowhere voluntarily. "People at the top in banking are getting paid less and less and seeing a collapse in their lifestyles," says Kerim Derhalli, the former head of equities trading at Deutsche Bank. "MDs want to get out, but they're still making much more than they could in a comparable job elsewhere and there aren't the alternatives." As markets pick up in 2017, Derhalli predicts these senior staff may smell a temporary reprieve and that there will be even fewer post-bonus resignations than usual as a result.
The other option is for banks to make their VPs feel special and to build structured promotions into the mid-ranks. The happiest VPs we spoke to cited both as benefits. "Only the best get promoted to VP here," one told us. "It's the analysts and associates who tend to be less motivated - and they just leave." Another said things used to be miserable for VPs at his (mid-sized) firm, until something was done to address it a year ago: "The old dynamic of unhappiness has been turned on its head by our new structured development programme. We now have visibility of career progression and an incredibly strong, motivated and collaborative VP pool." Big banks may want to take note.