Congratulations to the class of 2007: It is an excellent year in which to venture forth into the real world, and even onto Wall Street. For the very best and brightest among you, the bulge bracket firms (aka the really big guys) are hiring like mad. For the traditional entry-level position of “analyst,” the firms are paying a base compensation of about $70,000, with a bonus of anywhere between $65,000 and $95,000. Not bad, right?

Not bad, but, astonishingly, not good enough. These days, the Wall Street firms are struggling to keep their top hires, many of whom move onto the greener pastures of private equity and hedge funds after their obligatory two-year stints.

The firms are fighting back by raising entry-level compensation (base salary was $55,000 two years ago), taking in more first-years, and offering third-year jobs to their top hires after their first 12 months. In a real break with past practices, some firms are awarding their best trainees “associate” status in the fourth year — traditionally a title reserved for those coming out of business school. Still, the firms are losing many of their rising stars.

Why? Because, in the words of one top Lehman Brothers analyst, “the work is mind-numbingly boring.”

Meet Fred, whose name has been changed for obvious reasons. Fred graduated from a top Ivy school, and went to work for Lehman in investment banking. He studied finance as an undergraduate, and is as bright as they come. In a month or so, he will leave Lehman to work for a private equity firm, having turned down Lehman’s offer of a third year and implied “fast track” to the associate level. The salary for the next year at Lehman would have been $80,000, and the overall comp a potential $225,000.

Fred is not leaving for the upfront pay, but for the potential of a bigger hit down the road. The private equity firm that he is joining allows young people to participate in deals, and they participate in the profits of the firm from day one.

As important, Fred will be part of a three-person team making investments on the firm’s behalf. “It will be a lot more satisfying,” he says. “The incentive system is better, and more transparent.”

That is, he will no longer feel like a cog in an impersonal wheel. Fred’s real issue is that the work he has been doing — lining up financing for private equity companies — is dull as dishwater. Whereas in the old days the investment bankers were the creative masterminds behind financial transactions, these days the intellectual baton has passed to the firms that are taking everlarger companies private at an accelerating pace. Investment bankers view themselves as necessary but not very exciting ingredients in the mix.

“The private equity guys tell us what they want and we do it,” Fred says.

Boredom, of course, is not the only bane of the Wall Street analyst. Like medical interns, newcomers to Wall Street are subjected to punishing hours. Another analyst, whom we shall call Walt, has worked at JP Morgan for the past two years, but may bail on the whole process. “The first year we all worked 70- to 90-hour weeks and most weekends,” he recalls. “I was almost thinking about quitting. Analysts get in around nine and are routinely there until midnight. The second year is not quite so bad, once everyone has the next job.”

In other words, the workload slacks off a bit after the analysts have accepted another job, usually at the end of their first year. Although they are still competing for bonuses, most will be moving on, and are not so driven to excel. In the past, analysts would be expecting to go to business school for two years, and then return to their old firms. The pressure was intense, not only to get good recommendations on their applications but to get good job offers when they received their MBAs.

Neither Fred nor Walt sees business school in their immediate future. In another break from past practices, the business schools are requiring more extended work experience of applicants. In the process, some say, they are cooking their own goose. Many of the private equity firms deemphasize credentials. People will invest with them based on their returns, they figure, not based on where their people went to school. As a result, fewer of the top financial folks may end up getting an MBA. Still, business school is viewed as helpful in changing careers, according to Fred. “If I don’t love the private equity firm I’m joining, it would be a good way to make a transition,” he says. “With compensation in private equity going up 40% per year, though, it’s expensive to take that break.”

Walt may go to business school to look at other kinds of jobs. He has been working in a group trying to drum up business from a new sector and, like Fred, has found the work tedious and unsatisfying. “We were busy all the time putting pitch books together, suggesting deals the companies don’t want to do,” he says. “Investment bankers used to have the tools and have control of the information. These days, the clients are more sophisticated; it’s becoming a commoditized industry, and less rewarding — even at higher levels.”

Although both Walt and Fred are moving on, neither regrets their analyst experience. “I’m going to benefit from having JP Morgan on my resume,” Walt says. “I think I learned a lot.” Fred has a similar view: “I had fun with the guys in my group — we were all in it together.”

Still, at the end of the day, both felt their work was not creative or particularly intellectual. As Walt puts it, “Everyone else was baking cookies and we were just clawing for the crumbs.”

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