Lehman formula

Definition

Investment bankers' compensation formula developed by the securities trading firm Lehman Brothers. In its original form, it computes the fee or brokerage as follows: (1) 5 percent of the first million dollars of the sum involved in a transaction, (2) 4 percent of the second million, (3) 3 percent of the third million, (4) 2 percent of the fourth million, and (5) 1 percent of everything thereafter. In inflationary times, however, investment bankers often demand a multiple of these percentages.