As Wall Street gears up for its annual bonus season, investment banks are fine-tuning their analyst compensation structures to reward top performers and shape career trajectories. The process, which begins months before year-end payouts, involves a complex system of performance evaluations and forced rankings.
Starting in October, senior managers convene in a series of committee meetings to evaluate each analyst in their group. The cornerstone of this process is a comprehensive 360-degree review, where analysts provide self-evaluations and offer feedback on colleagues and superiors. This holistic approach aims to capture a complete picture of each analyst’s performance and potential.
The 360-degree review typically includes a series of closed-ended questions designed to assess various aspects of an analyst’s performance. Respondents rate their colleagues on a scale, often from 1 to 5, on statements such as:
- Workload prioritization and deadline management
- Communication effectiveness
- Leadership skills
- Interpersonal skills and team dynamics
- Embodiment of company values
- Timeliness and efficiency in providing feedback
- Teamwork prioritization
- Problem-solving and initiative
- Openness to feedback
- Appreciation of diverse perspectives
These quantitative measures are complemented by open-ended questions that offer deeper insights:
- What are this person’s key strengths?
- What should this employee start, continue, and stop doing?
- How well does this person manage their time and workload?
- Can you share an example of how this person has exemplified company values?
- In three or four words, how would you describe this employee?
- If you were in this person’s position, what would be your first action?
- How well does this individual adapt to changing priorities?
- What areas for improvement do you see for this employee?
Following this comprehensive review, committees engage in the most controversial aspect of the process: forced ranking. Analysts are categorized into three performance buckets: top, middle, and bottom. This ranking directly influences bonus allocation:
- Top-bucket analysts (typically the top 15%) can receive bonuses up to 100% of their base salary, with exceptional performers potentially earning up to 105%.
- Mid-bucket analysts (about 70% of the pool) generally receive bonuses between 85-95% of their base salary.
- Bottom-bucket analysts (the remaining 15%) usually see bonuses around 50-70% of their base salary.
For a junior analyst with a base salary of $100,000, this could mean the difference between a $105,000 bonus for a stellar performer and a $50,000 bonus for those struggling to meet expectations.
These questions help provide a comprehensive view of an analyst’s performance across various dimensions, from technical skills to interpersonal abilities and alignment with company values.
The implications of this system extend beyond immediate compensation. Top-bucket placement often signals strong prospects for promotion and leadership roles, while bottom-bucket analysts may face an uphill battle for career advancement within the firm.
While individual performance is the primary factor in bonus determination, banks also consider group and firm-wide performance metrics. The type of institution – whether an elite boutique, bulge bracket, or middle-market firm – also plays a role in overall bonus potential.
