WALL STREET ANALYSTS HAVE HAD A ROUGH DECADE SO far -- buffeted by scandal, widespread reforms, a loss of prestige and, most painfully, a decline in big-firm research budgets that hit them squarely in the pocketbook.
But although they may have trouble affording that house in the Hamptons, analysts are still a long way from the bread lines. According to Institutional Investor’s exclusive, inaugural survey of researchers working at U.S. brokerage firms, the average compensation for a senior analyst in 2006 was $590,897, up 6.7 percent from the previous year. Junior analysts earned an average of $146,158, an increase of 16.8 percent over 2005.
For analysts at the very top of their profession, the financial rewards are far more substantial. This magazine has been asking the investment community for 36 years to vote on the country’s best sell-side equity analysts. Almost as soon as the first All-America Research Team appeared, in 1972, analysts who earned a spot on the team began trying to wrangle bigger bonuses from their bosses. The impact of an All-America ranking persists today: Respondents to our compensation survey who were ranked on last year’s team reported average 2006 compensation of $1.4 million -- 2.4 times the average for all senior analysts.
The survey results are based on the responses of approximately 650 sell-side analysts. We asked them to specify their base salaries and bonuses for both 2006 and 2005, and to provide a wealth of other data (more-detailed results are available at institutionalinvestor.com).
A closer look at the numbers shows that the biggest percentage increases in pay are going to analysts with little experience who work at small firms. Veteran researchers working for bulge-bracket research houses are doing far worse.
The average 2006 paycheck for an analyst with less than five years’ experience, for example, was $228,908, up 18.8 percent from 2005. An analyst with between five and nine years’ experience earned $475,803, an increase of 19.7 from the previous year. But a researcher with ten to 14 years’ tenure won an average pay raise of just 3.6 percent in 2006, to $586,520. Those who had 15 or more years of seniority actually saw their average compensation decline by 1.5 percent, to $711,165.
An even greater disparity exists between big- and small-firm analysts. The only analysts in our survey who earned meaningful raises, on average, were those working at firms with less than 1,000 employees. These reseachers saw their pay rise by 10.3 percent, to $426,799. Average compensation for those in firms with head counts between 1,000 and 9,999 was $485,516, up just 0.5 percent. The average analyst working at a firm with 10,000 to 49,999 employees had a 2006 pay decline of 9.3 percent, to $831,404. Those in the biggest firms earned $747,651 on average, down 2.7 percent.
The divergence in pay raises comes as the biggest research firms continue to grapple with the aftereffects of dot-com-era excesses. A battery of postbubble reforms -- from Regulation Fair Disclosure, which prohibits companies from divulging privileged information to select analysts, to the conditions of a $1.6 billion settlement by 12 big firms of charges that their analysts deliberately overstated the prospects of investment banking clients -- diminished both the appeal of being an analyst and the value of research on Wall Street. Bulge-bracket firms, confronted with the legal separation of research from their banking divisions, devoted less money to research than they did during the late 1990s. Veteran analysts, facing lighter paychecks and more bureaucracy, began to leave in droves. And as the bulge bracket has pared back, the buy side has grown more receptive to smaller firms that focus solely on research, a trend reinforced by technological and regulatory changes that encourage investors to seek best-in-breed, highly automated trading services from one set of firms and top-notch research from another group of providers.
Despite last year’s uneven gains, analysts remain confident that their 2007 bonuses will rise. Sixty-two percent of respondents expect a bigger check come bonus time.
