What industries provide the greatest earning potential?

Let’s assume it’s money I’m after. In your experience, what industries provide the greatest earning potential for salaried employees. Is it Wall street (or private equity) or Fortune 50? Can you shed some light on the comparative attributes of such a climb, such as how many years it would take to get there and how hard one might have to work (in terms of work hours), etc.

The Harvard MBA says:

I love your directness.  It’s that kind of attitude that will help make you rich!

While the bloom is certainly off the rose when it comes to finance these days, the fact is that Wall Street is still the surest path to wealth.  Barring that, management consulting is also a good choice.  Entrepreneurship brings up the rear, at least if you look at median compensation (Larry and Sergey make up for a lot of failed founders!).

Classically, if you go to a top business school and go into finance, 10 and 10 is a good rule of thumb.  With hard work, it’s reasonable to expect to make at least $10 million over that time period.  You will have to pay a price–you’ll be expected to work at least 70 hours per week, and to get the right folks’ attention, 100 hours per week is a better figure.

Remember, however, that not all finance jobs are created equal, and that economic conditions do impact which jobs provide the fattest bonus checks.  When credit is easy, private equity is a license to print money–simply buy companies with borrowed money, use that debt as a tax shield, slash spending, and go public.

When markets are rising, hedge funds are a license to print money–with 2% management fees and 20% of the upside, you’d have to be a moron not to become rich in a bull market.

When markets are frothy, investment banking is a license to print money–when you rake in 7% of the proceeds on every IPO, plus millions more in M&A advisory fees, success is practically guaranteed.

Notice what those three things all had in common–that’s right, good times.  The current times are, to put it mildly, not so good.  But if you take a long term view, this might not be a bad time to get a job on Wall Street.  The best grads are turning their attention elsewhere, and markets tend to do well after massive declines.  Still, I’d wait 6-12 months before looking for a Wall Street job…it makes a lot more sense to join right before springtime, rather than right at the start of nuclear winter.

Much the same holds true for consulting.  If you manage to stick on the partner track at a management consulting firm, with 10 years, you’ll be earning mid-six figures (that’s $300K-$500K per year), while potentially building equity in the partnership.

Of course, there’s a price to pay in consulting as well.  In addition to the grueling hours, you can expect to travel 4 days a week to fun destinations like Detroit or West Virginia.

And in bad times, who do you think CEOs get rid of first–their employees, or their high-priced consultants?

Alas, there is no truly easy money.  But if you really want cash, Wall Street and consulting continue to be good choices, albeit less attractive during a downturn.

P.S. I do feel compelled to point out that despite knowing the economics involved, I spurned banking and consulting to focus on high-tech entrepreneurship.  It’s not as good for the wallet, but it’s a heck of a lot better for my personal happiness.  If you don’t love finance or giving PowerPoint presentations, you might want to figure out what you do love before swearing your allegiance to Goldman or McKinsey.

P.P.S. For a lighter take on bankers and consultants, check out this highly instructive video.

5 Comments

  1. Posted December 11, 2008 at 2:32 pm | Permalink

    Whatever your chosen field, whether finance, consulting, or entrepreneurship, the quickest way to maximize your earnings potential is to sell. If you want control over your income, become a rain-maker in your chosen field. It doesn’t matter whether you have a JD, MBA, or whatever, if you are the person bringing the clients through the front door, you set your price.

    The guys writing the code, checking the books, or writing the briefs are doing the heavy lifting. It’s still the hot-shot salespeople playing golf with clients at private country clubs, dining out at fancy dinners, etc. If you can convert relationships into clients, you have the power to control your destiny.

  2. admin
    Posted December 11, 2008 at 2:57 pm | Permalink

    Sam has an outstanding point. One of the principles I learned very early on in my career is that it’s better to be collecting money rather than handing it out.

    It’s easier to hand out money; therefore it’s less valued and less lucrative.

    Learn to sell, and you can always make money.

  3. Rainmaker
    Posted December 12, 2008 at 3:51 am | Permalink

    I’ve never heard of the 10 and 10 rule? Is that really realistic? Finance MBAs come out making $200k/year as an associate? Once they hit director level they might pull $1M a year, but that’s probably going to take the bulk of the 10 years to get there.

  4. Posted December 17, 2008 at 8:12 pm | Permalink

    The CNBC Original, “The Money Chase: Inside Harvard Business School” premieres tonight at 10p ET/PT. For 100 years Harvard has been the gold standard to which all educational institutions are compared. Join CNBC’s Carl Quintanilla as he takes an unprecedented look inside the school that has produced some of the greatest minds in business. What’s it really like to go to Harvard Business School? Go inside the ivy covered walls as Harvard commemorates its centennial. Features interviews with JP Morgan’s Jamie Dimon, GE’s Jeff Immelt, Blackstone Group’s Steve Schwarzman, Meg Whitman, and more.

    For web extras visit http://insideharvardbiz.cnbc.com

    Thanks,
    Kevin

  5. admin
    Posted December 25, 2008 at 10:02 pm | Permalink

    Rainmaker,

    The key to I-banking comp is the bonus. You get in the right place at the right time, and you can get the full $10 million in one year.

    You’ve got to work hard, kick and kiss ass, and get a little lucky (you can’t run into a credit crunch, for example), but $10 million in 10 years is eminently doable.

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