Lehman Formula Law and Legal Definition

The Lehman Formula is a compensation formula originally developed by Lehman Brothers in the early 1970s for investment banking services. It deals with amounts greater than a million dollars. The Lehman Formula is only used when a large stock investment transaction is made with an investment bank or institutional broker. The following is the Lehman Formula as originally described:

1. 5% of the first million dollars involved in the transaction

2. 4% of the second million involved in the transaction

3. 3% of the third million involved in the transaction

4. 2% of the fourth million involved in the transaction

5. 1% of everything above 4 million dollars.

In inflationary times, however, investment bankers often demand a multiple of these percentages.