Lehman Formula

AAA

DEFINITION of 'Lehman Formula'

A compensation formula developed by Lehman Brothers for investment banking services. The structure is as follows:

-5% of the first million dollars involved in the transaction
-4% of the second million
-3% of the third million
-2% of the fourth million
-1% of everything thereafter (above $4 million)

BREAKING DOWN 'Lehman Formula'

Because of inflation, investment bankers often seek some multiple of the original Lehman formula.

RELATED TERMS
  1. Investment Bank - IB

    A financial intermediary that performs a variety of services. ...
  2. Advisor Fee

    The fee that is paid to a financial advisor for recommending ...
  3. Exit Fee

    A fee or charge assessed to an investor for withdrawing money ...
  4. Underwriting

    1. The process by which investment bankers raise investment capital ...
  5. Origination Fee

    An up-front fee charged by a lender for processing a new loan ...
  6. Advanced Diploma In Insurance

    A qualification earned by insurance professionals and conferred ...
Related Articles
  1. Insurance

    The Rise Of The Modern Investment Bank

    Get to know a little bit about the institutions whose actions help to guide free markets.
  2. Professionals

    Making It Big On Wall Street

    Read about some of the most glamorous Wall Street jobs and what it takes to land one.
  3. Professionals

    Wanna Be A Bigwig? Try Investment Banking

    A career in this high-stress field can be very rewarding for the right person. Find out if you have what it takes.
  4. Personal Finance

    Case Study: The Collapse of Lehman Brothers

    This company survived many financial crises in its long history. Find out what finally drove it to bankruptcy.
  5. Personal Finance

    How Will The Subprime Mess Impact You?

    The subprime collapse could mean doom and gloom for housing, equities and the overall economy.
  6. Investing Basics

    Explaining Rehypothecation

    Rehypothecation occurs when an asset used as collateral for one party is reused in another transaction.
  7. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  8. Investing

    Career Choice: Bulge Bracket Vs. Boutique Bank

    Bulge bracket banks offer higher salaries and prestige. But boutique banks are rapidly gaining market share and may offer better work/life balance and job security.
  9. Personal Finance

    Careers: Equity Research Vs. Investment Banking

    Equity research is sometimes viewed as the unglamorous, lower-paid cousin to investment banking. In this article, we compare the two careers.
  10. Stock Analysis

    Morgan Stanley's Profitablity: Bank on It (MS)

    The economy offers few certainties, but Morgan Stanley's profitability might be one of them.
RELATED FAQS
  1. How does investment banking differ from commercial banking?

    Investment banking and commercial banking are two primary segments of the banking industry. Investment banks facilitate the ... Read Full Answer >>
  2. How can an investment banker switch to a career in corporate finance?

    It's pretty easy for an investment banker to switch to a career in corporate finance. The career skills are easily transferable, ... Read Full Answer >>
  3. What are the best MBA programs for corporate finance?

    Opinions vary based on which publications you consult, but the best MBA programs for a career in corporate finance are at ... Read Full Answer >>
  4. How stressful is the typical corporate finance job?

    In the financial industry, corporate finance jobs are often contrasted with investment banking jobs. The traditional view ... Read Full Answer >>
  5. What should I study in school to prepare for a career in corporate finance?

    Depending on which area you want to specialize in, corporate finance can be one of the most competitive fields in business. ... Read Full Answer >>
  6. What are the differences between a Chartered Financial Analyst (CFA) and a Certified ...

    The differences between a Chartered Financial Analyst (CFA) and a Certified Financial Planner (CFP) are many, but comes down ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  2. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  3. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
  4. Gorilla

    A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing ...
  5. Elephants

    Slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants ...
  6. Widow's Exemption

    In general terms, a widow's exemption refers to the amount that can be deducted from taxable income by a widow, thereby reducing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!