Less than a decade ago, top talent was flocking to Wall Street — not just for the high salaries and lucrative bonuses, but also for the opportunity to work in a dynamic and fast-growing environment.
But now the tech industry, with its double digit growth, is setting a new standard on what the ultimate dream job looks like, with its tales of young entrepreneurs-turned-millionaires overnight — and of game rooms and lounges alongside brainstorming corners and innovation workshops.
Tech companies have become the new desirable destination, not only for top programmers but for leading Wall Street executives, too. And with successful IPOs from the likes of Twitter, Facebook, and LinkedIn, Silicon Valley has created giant companies with the resources to pursue and retain top Wall Street talent.
Headline Hires in M&A Land
When Marissa Mayer became Yahoo’s chief executive in 2012, she hired Jacqueline D. Reses, a former Goldman banker, as the company’s chief development officer. Since then, the brain drain from finance has become apparent. Examples abound:
- Ruth Porat, CFO at Morgan Stanley has recently been snatched by Google.
- Former Goldman banker Anthony Noto moved to Twitter.
- Credit Suisse lost tech banker Imram Khan to Snapchat.
- Former Morgan Stanley securities analyst Mary Meeker is now an analyst at leading Silicon Valley venture capital firm Kleiner Perkins Caufield and Byers.
- Laurence Tosi left Blackstone Group for Airbnb.
- Goldman Sachs’ Sarah Friar moved to Salesforce.com, and then to Square.
- David Wehner of Allen & Co joined Zynga, and then Facebook.
The investment in these hires makes sense from the tech giants’ perspective, since acquiring other companies and expanding into new geographies has become their core growth strategy. And we’re seeing an acqui-hire trend in tech, where giants acquire startups for the sake of raiding their talent. As these complex executions (along with post-merger integration and constant sourcing of deal flow for potential acquisitions) become inherent to their business, tech giants require the expertise of high caliber in-house financial professionals.
Since these companies are all public companies, and all eyes are on them, reporting and compliance become increasingly important — yet another reason to hire in-house bankers.
The active M&A scene in tech creates an ongoing appeal for financial sector professionals to take part in this ecosystem instead of working on deals in more traditional industries. As the tech giants branch out to other geographies such as Europe and Asia, establishing R&D centers in key locations, their visibility into other markets and opportunities expands significantly.
Additionally, the scale of acquisitions has been increasing to multibillion-dollar deals. Consider the $12.5 billion acquisition of Motorola Mobility by Google (which later kept the IP and sold the company to Lenovo for $2.91 billion), among other billion-dollar acquisitions of companies like Waze and Oculus. The famous $19 billion acquisition of WhatsApp by Facebook set another record in tech giant acquisition history. Since then we have seen the $19 billion acquisition of Sandisk by Western Digital and the largest merger in history when Dell acquired EMC for $67 billion. These deals feed into the infatuation with all things tech, creating the right content for talent to migrate from finance.
MBAs Vote Tech
With Wall Street compensation shrinking, recent business school graduates are having difficulty justifying the intense 100-hour banking work week and lack of a work-life balance. Instead, they are choosing the casual work environment and flexibility of tech firms, trading in the Wall Street suit and tie for jeans and a tee shirt.
MBAs are fighting over internships at Google so they can breathe some innovation air as they stroll on campus among smart cars, in-office Segways, and dog-friendly work settings.
Companies like Amazon and Apple are highly ranked employers among MBAs. Last year, only 10 percent of MIT graduates went into finance, compared with the 31 percent in 2006. According to WSJ research, in 2011, 36 percent of Stanford graduates were recruited to finance jobs. This number is comparable to other top finance focused universities, including Harvard, Yale, University of Pennsylvania, and University of Chicago. By 2013, that number had shrunk to 26 percent (a decrease of almost 30 percent). During those years, the tech industry grew dramatically, and in 2013, 32 percent of Stanford graduates took tech jobs compared to only 13 percent in 2011. Although not all of the attrition in finance can be attributed to tech, research by The Economist shows that tech is quite the migration destination.
In the shift to tech companies, Stanford graduates are willing to accept a compensation composed of a lower salary and an equity component in return for a positive work culture and mission. A median tech salary for a Stanford MBA graduate averaged ~$160,000, including signing bonuses and other guaranteed compensation, compared to $285,000 in finance jobs. The delta between offerings is not dramatic, as it is offset by the equity or options component employees receive in the tech sector. Bonuses in the financial sector are nowhere near the millions of dollars pre-crisis, making it harder for MBAs to go for the banking lifestyle and culture for just another $100k a year before taxes. The upside of those tech equity options have the potential of becoming more lucrative and making the overall compensation package worth a whole lot more.
Tech giants are also increasing their East Coast presence, with Google and Facebook growing their New York offices and recruiting an increasing number of MBA graduates.
In 2011, only 5.5 percent of Columbia University graduates went for a job in tech. In 2013, that number grew by 112 percent to 11.7 percent. Giants like Amazon, AppNexus, Facebook, Spotify, eBay, ZocDoc, LinkedIn, and Yahoo have added the most New York City jobs in Q2 2014.
A Growing Trend
The migration of top executives and young talent to the tech scene is a worrying trend for Wall Street. It is possible that the demand for finance will rebound if compensation packages return to pre-2008 standards. However, the shift to tech is much more than just a monetary issue. It has become obvious that lifestyle, autonomy, and the opportunity to work in a high growth industry that is changing the world are important factors. Wall Street and other traditional industries will have to continuously adapt in order to compete with the ever-growing tech industry.