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Showing The MBA's The Money: Gap Between Investment Banks And Private Equity Is Smaller Than It Appears

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On Monday we noted a Financial Times article reporting that business school graduates who head for private-equity firms earn much more than those who land jobs in big, publicly traded investment banks. This stuck as absolutely correct but we wondered if the story had overstated the gap between PE and investment banking pay.
According to the Financial Times, recently minted MBA's "stand to earn more than $400,000 in salary and bonus in 2007-08, plus up to $5 million over several years depending on the fund's performance."
"By contrast, first-year associates with MBA degrees at big, publicly traded investment banks can expect to make $70,000 to $80,000 in base salary plus bonuses of $60,000 to $80,000, according to Eric Moskowitz of the Options Group," the article continued.
That would make for a total pay package of $160,000 at the upper levels, which seemed mighty low to us. In fact, as more than one of our commenters pointed out, that's what first year analysts, who are mostly freshly minted college grads without higher degrees, earn at investment banks. First year associates--largely business school grads--earn much more.
We contacted the Erik Moskowitz at the Options Group to find out why the numbers seemed so off. He tells us that our impression was correct. Those numbers were too low for associates. According to Moskowitz, first year associates earn a base salary for $100,000 to $120,000k this year and can expect a bonus of $125,000 to $175,000 in 2007. That leaves a total compensation package of nearly $300,000 for the top earners. That's not quite what their mates at PE shops are bringing home but it's much closer than the original piece indicated.