Investment bankers make money because they are allowed to borrow enormous sums of money (leverage) to invest. In other words, they are allowed to gamble with the money of others with very little consequences. There is no other industry where a company would be allowed to take on that much debt. It's like the old joke: How do you make a million dollars? Start with n million dollars! Even if you do make money in finance, your contribution to shareholders is probably a lot less than it would be in another line of work. Here [1] is an excellent write up about it.
In 2008, Barclays had over 43 times as much assets as they had equity (leverage ratio) while GlaxoSmithKline had a leverage ratio of 5. In 2011, GSK had a return on assets (money made from assets at its disposal) of 15%. Barclays had a ROA of 0.25%. GSK had a return on equity (ROE) of 67.2%, while Barclays had a ROE of 6.1%. In the same year, Barclays Capital (investment bank part of Barclays PLC) had a ROE of 10.3%, but had a leverage ratio of 55 and a ROA of just 0.18%. If you paid Barclays Capital employees the same salary as GSK employees, the pre-tax profits of BarCap would have doubled. That is why bankers pay should be limited — their ROE would be better although their leverage ratios are still way too high.
TL;DR version: If you want to work in a field where you generate real value instead of gambling with someone else's money, find a job where you make things. The world doesn't need more inappropriate math models of finance (no, the market is not always rational and large volatility is more common than you think) — it needs real research.
I don't know the numbers but I'm not sure using 2008 data gives a fair picture. If the ROA of Barclays would have been consistently so much lower than that of GSK, the capital would simply gradually move to GSK. Banks are not allowed to borrow money, their creditors want to lend them money. (Presumably because TBTF lending is perceived to be a safer business than risky development of pharmaceuticals.)
In 2008, Barclays had over 43 times as much assets as they had equity (leverage ratio) while GlaxoSmithKline had a leverage ratio of 5. In 2011, GSK had a return on assets (money made from assets at its disposal) of 15%. Barclays had a ROA of 0.25%. GSK had a return on equity (ROE) of 67.2%, while Barclays had a ROE of 6.1%. In the same year, Barclays Capital (investment bank part of Barclays PLC) had a ROE of 10.3%, but had a leverage ratio of 55 and a ROA of just 0.18%. If you paid Barclays Capital employees the same salary as GSK employees, the pre-tax profits of BarCap would have doubled. That is why bankers pay should be limited — their ROE would be better although their leverage ratios are still way too high.
TL;DR version: If you want to work in a field where you generate real value instead of gambling with someone else's money, find a job where you make things. The world doesn't need more inappropriate math models of finance (no, the market is not always rational and large volatility is more common than you think) — it needs real research.
[1] http://www.moneyweek.com/news-and-charts/economics/uk/banker...