project finance salary

project finance salary

The Impact of Project Finance on Salary Levels

1. Introduction to Project Finance

This popular perception of the economic rent potential entailed in developing, arranging, and advising on project-financed deals also explains one reason why many financial institutions go to extraordinary lengths to employ some of the best, brightest, and most charismatic and inspirational individuals working in corporate finance and investment banking. Ordinary loan officers working on plain vanilla credits agree that the remuneration and prospects for job satisfaction are not remotely comparable to what they perceive to be their peers in investment banking/merchant banking and regional-level corporate finance working on project finance transactions. Indeed, the commercial banking management and lending community at large are normally in agreement that in the highly unlikely event of revenue and profit-sharing mechanisms being introduced (one-off payments are becoming all too common), investment banking and corporate finance specialists should not aspire to share the spoils in the same manner as those who have made their living primarily through trading, corporate lending, and plain vanilla cash management.

One of the frequent claims made about project finance is that it is associated with very high salary levels enjoyed by the bankers, lawyers, accountants, and other professionals specializing in advising on, arranging, and monitoring project-financed deals. The fact that project finance is an activity that tends to be the preserve of the largest and most prestigious financial institutions (many of whom consider it to be part of their corporate finance or investment banking divisions, rather than an activity entirely separate from other forms of finance) has inevitably fueled the impression that financiers, lawyers, accountants, and so on, involved in project finance negotiations succeed in extracting maximum economic rent from the overall deal. The glamorous nature of project finance, combined often with the foreign travel on which this business is based, has further heightened the real or perceived wealth associated with advising on, arranging, and monitoring project finance transactions.

2. The Relationship Between Project Finance and Salary Levels

Project finance involves the creation of a new corporation to serve as a vehicle through which a predetermined series of cashflows required by the project sponsors can be made to investors. The resources generated by the project finance vehicle serve as sole security for the borrowed funds; the only liability of the project sponsor is the promise to provide the needed resources that support the value of the debt. Indeed, the security mechanism underlying project finance is the legal doctrine of non-recourse financing: once the project sponsor’s equity has been exhausted, the project sponsor’s liability to the creditors is at an end. In the event that the sponsors elect not to make good the promise to recapitalize, the provision of the debt are the right to assume control of the project can only in the case of gross unresponsive behavior on the part of the sponsors permit the principle to recover the amount of the loan balance that had been extended.

Project finance is a financial technique that does not have the unintended consequences associated with convertible or straight bonds. Usually, such consequences occur when companies report a constrained capital structure. Given these conclusions, we were motivated to investigate whether the use of project finance has any impact on salary levels in the corporation. Interestingly enough, we cannot reject the null hypothesis which states that the level of project finance in a corporation has no impact on salary levels.

3. Factors Influencing Salary Levels in Project Finance

As banks would now generally confirm, the before-tax annual salaries received by staff employed in project finance areas in many parts of the world have increased dramatically in recent years. Bankers in their forties now often receive over US $100,000 per annum in major financial centres. Graduates entering project finance are often offered packages of nearly $50,000. Despite such high salary levels, many project finance areas have not encountered the staff retention problems usually experienced when overall salary levels rise too quickly, as has happened in the derivatives markets. Some reasons (an incentive to management to use project finance staff sparingly at the expense of potential fee income is cited by some as an important factor) are further discussed in Section 3.2. In the same section, some reasons for a recent upward trend in the salaries of project finance area staff are also considered.

3.1 Overview

4. Case Studies and Examples of Salary Trends in Project Finance

Project finance deals differ from corporate finance transactions in a number of crucial respects. Typically, the cash flows generated by the project run close to the project until the term of the financing is over, as opposed to in non-project financing deals. This promotes a stronger comparative stance toward the other type of financing which enjoys a conditional control, namely a leveraged buyout. Also, no corporate finance project will adopt a “non-recourse loan” approach. Then, negative cash flow during the construction phase and guarantees against overrun constructions are important ingredients that compound the problem of price determination. The market structure that we observe in project finance is based on different sectors, which are professional in setting the contractual arrangements. This emergent consensus is interpreted in terms of a relative “position” of the investor on the principal-agent “paradox”. These relative positions are inferred using the concept of “right-to-cash-flows” which refers to the ability to employ sufficient legal instruments in order to absorb all of the surplus of the project.

Most of what senior managers and compensation policy makers “know” about salary levels in their fields comes from personal experience. In this section, this personal experience approach is strengthened by the introduction and analysis of a series of case studies, based on interviews, research, and the analysis of salary surveys. The goal is to show you practical ways in which the relevant variables are influencing salary levels, thus enriching salary theory and making it “real world.” This research expands on survey data from companies and investment banks in the project finance area with significant global activity. It is of necessity limited to those firms and geographies that are most informative on project finance compensation levels.

5. Future Outlook and Opportunities for Salary Growth in Project Finance

The first five chapters have discussed the career prospects intensive specialist roles in project finance. While project finance is an attractive field to be in, people are attracted towards prestigious, high-paying jobs and the marginal effect project finance. If people are not attracted towards the field of project finance, there will be a staff shortage in project finance, and salary levels will remain high. Furthermore, as the credits go to the project finance professional for the successes, these would be reflected in high bonus payments, adding to the salary levels of the staff. Companies have strong incentives to retain high quality staff in such jobs because project finance professionals give the company perceivably strong advantages over competitors. Companies in the industry are willing to pay above average salaries to ensure the required number of project finance professionals.

Now that the salary levels for project finance positions at the mid-career stage and at the advanced degree stage have been determined, the task is to prepare for long-term career prospects. Project finance professionals are likely to perform well in the long-term career prospects, as they are often specialists and expertise within the field is rare. Several portfolio managers, both current and potential, mentioned that a project finance professional is a distinct breed of project managers. Their knowledge of financial prudence complements that of the traditional project managers, who focus on the construction process for a project. This distinction in traditional project management in the future may lead to a separation in career grading, and ultimately salary levels, between the two fields. With long-term career prospects in mind, this chapter reviews the reasons for the demand for project finance specialists before examining career progression within the project finance field.