Investment bank Jefferies Group paid the highest salary per employee on average for the first six months of its fiscal year beating larger investment banks Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM), Morgan Stanley (MS), Bank of America Corp. (BAC) and Citigroup Inc. (C). In the first six months of its fiscal year, Jefferies Group set aside $870 million for employee compensation.
That translates to an average pay of $228,407 per employee at the investment bank. At midyear, Jefferies employed 3,809 people. Its first-half compensation of $870 million is approximately 1 percent less than last year.
Goldman Sachs Among Highest Paid
For the comparable six month period, Goldman Sachs spent a total of $7.29 billion in employee compensation, a 14 percent drop from the corresponding prior year period. The investment bank employed 32,300 workers resulting in average compensation of $225,789 per employee. Unlike Jefferies, Goldman Sachs includes consultants and temporary staff when reporting headcount. Jefferies on the other hand has a different disclosure policy and tallies only full-time workers in its disclosures.
Including temporary workers would result in 10 percent to 15 percent higher headcount at Jefferies. It would also push the smaller investment bank below Goldman Sachs in the firm’s average pay per employee, but still above that of other bigger investment banks JPMorgan and Morgan Stanley.
Hiring Strategy
Jeanne Branthover, a managing director at Boyden Global Executive Search Ltd, says smaller investment banks enjoy the flexibility to better adapt to changing economic conditions compared to larger investment banks. Commenting on the ability of Jefferies to offer a larger pay out than its bigger investment bank rivals, Jeanne says,
“If you’re extremely large in today’s economy, chances are you’re trying to scale down or cut costs. By staying nimble, flexible and smaller, you can keep your costs down, you can hire the best because you can give them the incentives needed to be the best and stay there.”
Jefferies has a much smaller asset base of $35.7 billion compared to Goldman Sachs’ $949 billion and JPMorgan’s $2.29 trillion. Paul Sorbera, president of executive search firm Alliance Consulting, says as a result of the smaller asset size, investment bankers at Jefferies are often producers “on their own basis and relationships”.
He says bankers and traders at the other two investment banks are more tied to their companies’ brands, and this incentive structure results in traders at Jefferies getting paid more than traders at investments banks JPMorgan and Goldman Sachs.
Declining Revenue to Impact Job Market
Combined first-half revenue at five biggest U.S. banks Bank of America Corp., Citigroup, JPMorgan, Morgan Stanley and Goldman Sachs dropped to $161 billion, down 4.5 per cent from 2011 and the lowest since $135 billion four years ago in 2008. As a result, all these five investment banks have been taking steps to lower employee expenses. Goldman Sachs in July announced that it plans an additional $500 million in expense reductions that will mostly come from compensation.
But the investment bank added said it plans to add junior employees. Compared to these bigger banks, net revenue at Jefferies was little changed in the first half of the fiscal year, from a year earlier. Jefferies’ headcount has increased 68 percent from 2,270 in the fourth quarter of 2008. The firm’s executive committee chairman Brian Friedman said in June that the investment bank’s goal is to grow deeper in the products and geographies it occupies.
