Comp ratios exceeding 60% aren't necessarily a bad thing. If existing and new senior bankers attract sufficient business, they could justify the outlay. Evercore CFO Timothy LaLonde said that to assess recent additions, he considers metrics including internal rate of return and net present value, concluding that the numbers looked "pretty good." It would be counterproductive to stop hiring what he called "positive-NPV" partners just to meet an arbitrary expense ratio.
The assertion raises an important question: Just how much extra revenue would it take for the higher outlays to make financial sense? One M&A-banker tool, the return on invested capital yardstick, is instructive.
Start by quantifying the "I" in ROIC. If pay ratios from 2016 to 2022 are deemed "normal," then anything above that level can be considered additional discretionary investment in people. For Evercore, Lazard, Moelis and PJT, this "excess comp" between 2023 and the end of 2026 will be about $2.3 billion, Breakingviews calculates.
Assume a 10% return would qualify as success. On that basis, the extra outlays would need to generate a collective $230 million earnings uplift, equivalent to $300 million before tax. Use a 35% operating margin to estimate incremental profitability, 10 percentage points above the norm, which already factors in existing overhead costs. The necessary fee income to generate a healthy return for shareholders would then be $900 million.
How plausible is that target? As a percentage of the quartet's relevant revenue in high-flying 2021, it's 11%. Relative to total industry M&A fees that year, it would amount to an extra 2 percentage points of market share. That figure may overstate the size of the task because other businesses, like restructuring, will do some of the lifting. AI-enabled cost-cutting also could help. It's nonetheless a stretch target.
Evercore is the only one of the four firms to have consistently and materially boosted its portion of deal fees recently, based on Dealogic figures. Boutiques also collectively lost market share in the first half of the year, to 25.7% from 26.4% in full-year 2025. Bigger and broader banks such as Goldman Sachs GS.N, JPMorgan JPM.N and Morgan Stanley MS.N are reporting bumper earnings, potentially giving them resources to invert history and poach from their smaller peers. Another danger is that the M&A boom peters out sooner than expected or simply falls short.
Bosses at deal-advice shops could argue they have little choice but to keep compensation ratios higher. Failing to stump up for new rainmakers would stunt growth; not paying existing ones leaves an escape hatch in a frenzied climate. It may be true, but also a tacit admission. For the first time in a while, instead of creating the M&A storm, the boutiques are at its mercy.
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