Big sign-on bonuses lure energy traders

It's a fortuitous time to be an energy trader: recruiters say they're changing hands for up to 40% more than last year, and that banks are luring them with sign-on bonuses as high as 500,000.

"In certain instances, pay for energy traders is up as much as 35% and 40% on last year," says Colleen Quilty, head of commodities at search firm Alexander Mann. "There's huge demand and competition for a skill set which is in comparatively short supply."

Jakob Bloch, managing director of search firm Commodity Appointments, says banks' eagerness to hire energy traders is prompting them to offer guaranteed bonuses that are 40% higher than last year, and sign-on payments of between 50,000 and 500,000. "A few individuals have signed on for six figures," he says.

Tales of escalating pay in the energy and commodities market are nothing new. The current commodities rally began in 2001, and has gone from strength to strength on the back of strong growth in the Chinese economy, lack of spare capacity and geopolitical threats to oil supplies.

Last year, Bloch says, a handful of top traders in the sector earned as much as $10m. This year, he says they may be on track to earn even more.

Lehman is understood to be looking to add staff to its nascent energy trading desk, as are JPMorgan and Credit Suisse. More established players like Goldman Sachs, Morgan Stanley, Deutsche Bank and Barclays Capital are also said to be hiring.

"Banks with an established presence are equally keen to expand and upgrade," says Quilty. "Hiring is really across the board."

Experience with physical products at a premium

Bloch says the most sought after traders combine knowledge of the energy derivatives market with experience of trading physical products, like gas, oil and coal. "The guys banks want are not so much pure derivatives traders, as people who understand both derivatives and the underlying products," says Bloch. "Banks are moving into physical as well as paper trading."

He says this is creating headaches for oil companies and utilities, both repositories of traders with physicals experience, which are suffering as staff exit for banks. Neither are able to compete with banks on pay, particularly following the emergence of generous sign-on bonuses.

Bloch says demand for traders with physicals experience is also creating openings for continental European staff to work in the City of London. "The London market has traditionally been derivative focused," he says. "There are various physical players in continental Europe. We've seen several attractive candidates from Italian energy companies, for example."

Pay in the City is considerably higher than in Europe. Boch says an energy traders with five years' experience can around 500,000 working in London.

Not all energy trading recruiters are bullish on compensation, however. While conceding that talent in the area is tight, one says stories of accelerating pay aren't entirely true. "There's a lot of hot air about pay for traders," he says. "Some banks are offering them big guarantees, but there are also plenty of banks that aren't and they're still managing to hire."