Sector View: Banks' bottom lines dictate top IT pay

If you want to reach the top of the information technology heap on Wall Street, and the seven-figure compensation that comes with the CIO job, you'd better know how to walk the IT walk and talk the bank's talk.

So says Valerie Germain, a partner in Heidrick & Struggles' global chief information officer and financial services practices. Her recruiting practice focuses on the high end of investment banking, although she also acts as a consultant to CIO's on hiring across all securities sectors.

Germain says, 'For pay in investment banking at a bulge bracket firm, you are talking in the $3-5m range, greater with deferred compensation. It isn't all cash; some of it comes in equity.'

She sees the occasional outlier whose pay may reach $6m (€5m), but such people are apt to have responsibilities that go beyond being CIO. Below CIO, other high-end IT jobs tend to pay in the range of $1.5m to $3m.

Germain says, 'Then you start to see a lot of variation depending on the area.' A job running front-office application development can pay $500,000 to $1m. In highly specialized areas, such as derivatives risk management or algorithmic trading, the numbers can climb significantly higher.

Thinking outside the IT box

'As people move up the food chain in terms of seniority, you see bifurcation between people who are really good at building and delivering technology and people who are really good at managing the delivery of technology,' Germain says.

That's a subtle distinction, but it means that the latter group is made up of the people who can stand up in front of a business group - and be understood. They can put a strategy together and think of the holistic framework: what the firm is trying to do and how it all fits together.

One of Germain's clients, an investment banking CIO who recently shifted firms, says the internet era largely destroyed what discipline existed in IT. Once the dot-com snowball melted, business started to demand that IT become more professional and act more like the business side with a focus on cost and on-schedule delivery.

He says, 'The business guys want to treat IT as a product group, and if you can't adjust, you are going to have trouble.'

Germain agrees, and says, 'There is still a need for people who are just exceptionally strong technologists, but increasingly today there is need for people who understand how to run technology as P&L, how to work with the business side, think like a business person and manage the delivery of technology and services to the business side like a client base.'

Banging on Bangalore's door

With more pressure applied to the finances of running an IT operation and the options available, outsourcing is driving a need for further business analysis. Germain asks, 'How do we create the most functionality - do we go off-shore, hand it to a vendor, bring in outside products and services?'

She answers by saying that banks will continue to put work off-shore, especially in India, where IT operations are strong on structure. Even though most firms have not always realized the cost savings that had been projected, 'banks do see an opportunity to develop certain applications, or pieces of applications much quicker by using cheaper resources elsewhere,' Germain says.

Firms can move application from development teams in the U.S. to teams in India to do two shifts a day, or they can use Indian suppliers who will offer development around the clock in India.

Now firms expect the CIO to analyze the opportunities and present a business case for decisions about which projects to pursue, how to allocate resources, and how spend will impact the balance sheet at the bank.

When IT hurts

Overpriced IT can take a toll on a bank. Take Commerzbank as an example. Beyond recently losing Mehmet Dalman as head of investment banking and Mark Eban as global head of capital markets, the bank is facing debilitating IT red ink: €129m ($160m) out of a total €167m in cost overruns, or 77%, according to a report in September from consulting firm Mercer Oliver Wyman.

The report blames Commerzbank's IT troubles on complexity and duplication, a situation which points to just what other banks need to avoid: senior IT managers who do not understand general management skills and the ability to think about balance sheets and budgets - and how to accrue or charge back.

Most Wall Street firms have cut IT costs and scrutinized IT spend, but they are looking more and more to their CIO's to justify their decisions and their lofty pay packages. Some think that could change if profits rebound to the highs of just a few years ago. A CIO at a New York bank says, 'Investment banking has always had a cowboy mentality, and so has IT. When the economy improves, people typically care less about the costs of software.'

Once thrown from the saddle, however, expect Wall Street's cowboys to remember how hard the fall was to the backside no matter the market's potential upside.