The Lehman Formula, also known as the Lehman Scale, is a formula to define the compensation a bank or finder should receive when arranging for and handling a large underwriting or stock brokerage transfer transaction for a client. The formula usually applies to the entire value of the stock. Formula The Lehman formula was originally used by investment banks and individual or corporate "finders" for the raising of capital for a business, either in public offerings or private placements, payable by the vendor(s) of the business once the funds have cleared. It usually deals with amounts greater than one million dollars. Below this mark, brokerage services and investment banks usually offer a set of tiered fees, or set-rate trading prices (such as $9.95 per trade). The original version (called the Lehman Scale) was as follows: 5% of the first $1 million raised from investors 4% of the second $1 million raised from investors 3% of the third $1 million raised from investors 2% of the fourth $1 million raised from investors 1% of everything above $4 million raised from investors. The Lehman Scale was widely used in the 1970s, 1980s and 1990s but is no longer the standard that it used to be due to inflation ($100 in 1970 is $ in dollars). To account for this, some banks developed variants in the 1990s that critics saw as overly greedy - for example, switching to $10 million increments (i.e., 5% of the first $10 million, plus 4% of the next $10 million, etc.). Today, the original formula remains in use in limited situations with so-called "finders" - individuals (not firms), who introduce relationships but otherwise do not have any execution, distribution, legal, analytic, or administrative role in the execution of a deal. History The formula was first developed in the early 1970s by the Lehman Brothers, for underwriting and capital raising services. Before this, the charge would vary wildly from institution to institution. In some cases, the charges exceeded 15%. The Lehman Brothers created a formula to apply to the dollars in terms of total capital of a transaction, rather than a larger share of equity dollars. Usage The Lehman Formula was used when a large stock investment transaction is made with an investment bank or institutional broker and for private asset transactions. It also began to be used for finders who would arrange for the parties to an acquisition