Recruiters Offer Enticing Bonuses : MBAs View Investment Banking Cautiously
It was only a few days after federal agents arrested one of the top investment bankers at Kidder, Peabody & Co. Inc. that Townsend (Tad) Smith arrived from the University of Virginia at Kidder’s Wall Street headquarters for his job interview.
For Smith, who will earn a master of business administration degree from Virginia’s Colgate Darden School of Business Administration this spring, the shot at becoming a Kidder, Peabody investment banker was the culmination of an intensely competitive drive to earn an MBA from one of the nation’s 10 top-rated business schools.
Smith was not deterred by the indictment of a Kidder executive--and a dozen other Wall Street investment bankers--on insider-trading charges.
“Certainly, there’s a concern about how far (the investigation) will go, how deep it is on Wall Street,” said the 28-year-old Smith, who accepted Kidder’s offer of a job. “Time will tell the whole story. (The arrests) didn’t change my decision. I think it’s a firm of good, qualified bankers.”
When making a career choice, Tad Smith said, “It’s important not to let current issues cloud your decision.”
Of the 70,000 students who will earn MBA degrees this spring, many of the best and brightest will face the same dilemma: Should they take a high-paying job at one of the firms embroiled in the worst scandal in Wall Street history?
“We’re now at a critical point in terms of whether students will be affected,” said John W. Rosenblum, dean of Darden. Students look at stock speculator Ivan F. Boesky or Dennis B. Levine and say, “That isn’t me,” said Rosenblum. But the more recent arrests that have hit at the heart of Wall Street will force them to draw a line, he said. “When is it a system out of control?”
Investment banking, according to recruiters and university officials, has long been the MBA’s highest-paid calling. Those jobs went to the survivors of a gauntlet of cocktail parties, command performances and interviews. The median salary for new MBAs from Darden last year was $50,000, including guaranteed bonuses.
This year, even such salaries do not spell security for some business students shaken by the insider-trading investigation, which already has put some investment bankers behind bars and forced recruiters for Wall Street firms to offer unusual reassurances to students they want to hire.
“Some students are wondering what will happen to the business base and their bonuses the first year,” said Arnold Douville, 31, a University of Chicago student. “When you spend a lot of money to go to business school, work hard to get here . . . you don’t want to tarnish yourself . . . to go with a firm that’s got a bad reputation . . . where there’s not going to be any sales.”
Deregulation of financial services has prompted rapid growth in investment banking firms, brokerage houses and the investment departments of banks in the last three or four years and those businesses have been hiring crop after crop of MBA graduates. At Columbia University last year, 31% of the graduating MBA class was hired by brokerage and investment firms; at Darden, 26%, and at Harvard, 30%.
Although some business school officials believe the demand from investment firms for MBA recruits may be leveling off, the firms approached recruiting as intensely this year as they have in the last several years.
Recruitment is a formal, ritualized mating dance between recruiter and graduating MBA students, according to university officials. At the top business schools, leather-bound books containing resumes of the MBA students are sold for as much as $150 a copy to recruiters.
Both senior and junior representatives of the firms come to campus in the fall to make presentations about their businesses. Often, firms host an evening reception for students that, though it appears to be an informal social situation, is used to make note of which students would “fit in” with the firm.
On later visits to campuses, the recruiters sponsor a select dinner for their most promising candidates. Then there will be several trips to New York or other cities for interviews with officials of the companies--where as many as 40 executives of the firm may meet with the candidates.
Placement directors at business schools said that recruiters from investment banking houses come in early January to interview and get first crack at the best students. Most of their recruiting was finished before the embarrassing February arrests involving stock traders at Goldman, Sachs & Co. and Kidder. Since that time, other major Wall Street firms, such as Merrill Lynch & Co. Inc. and Paine Webber also have been implicated in wrongdoing.
“Investment banking firms come, look and put significant pressure on (students) to accept the offers,” said Arthur D. Little, managing general partner at Narragansett Capital Associates, a leveraged buyout firm that competes with larger investment banking firms for top talent.
‘Exploding’ Bonus
Recently, the inducements have included a wrinkle called the “exploding bonus,” an offer of a specific amount--usually $5,000 to $10,000--if a much sought-after student signs with a firm before a certain date. If the student waits, the bonus disappears, or explodes.
University officials object to such offers. Some schools, such as Harvard, have rules against them, saying they don’t give students time to consider their options.
Students considering offers are concerned, said Samuel L. Hayes III, professor of investment banking at Harvard. “I have a steady stream of students coming through my office . . . asking me, ‘Do you think X firm or Y firm is clean?’ ” said Hayes. “I don’t think most of the students make the extrapolation from alleged wrongdoing of individuals in order to paint a whole firm black . . . but they are raising questions.”
In a survey of students at Duke’s Fuqua School, 87% of the respondents said they believed that insider trading occurs routinely.
“They have confidence in their own ethical standards,” said Chris Duke, 27, an MBA student at Fuqua.
Investment banking firms named in the investigations are reluctant to talk about their recruiting practices. Those that have not been named are cautious because, they said, no one knows who might be next.
A number of students who had accepted or were considering job offers from Wall Street firms also declined to be interviewed, citing concerns that something they might say could affect those offers. One student from a top business school was advised by the investment banking firm where he will work not to talk to a reporter, or, if he did, not to mention the firm’s name.
MBA students also are sensitive to questions about the scandal and the greed of those who have been convicted of law violations--several of whom had salaries and bonuses of more than $1 million a year, apart from any profits earned from illegal insider trading.
“Business students get a bad rap, being (portrayed as) aggressive, money-hungry kids” said the University of Chicago’s Douville. “It’s not that. They’re goal-oriented people who want to accomplish something . . . and be rewarded for that.”
Students are quick to point out that the large starting salaries and bonuses that many of them will earn in their first year are for jobs that often require 110 hours a week in highly stressful situations.
Still, they are not deterred by the pressures. “It’s a pretty sexy business right now. Lots of big salaries, lots of big deals,” said Lee Seward, 27, a Darden student.
