Lehman Formula

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.