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Back-Office Pay Said to Impede Risk Controls

To the gunslingers hauling in the revenues on the trading floor, it might seem obvious that they're paid more than the bank's back-office staff. But a recent report suggests this imbalance is unfair and should be rectified.

A wide-reaching 176-page report issued earlier this month by the Counterparty Risk Management Policy Group - whose members include Goldman Sachs, HSBC and Morgan Stanley - says that the contribution operations and risk management staff make to the bottom line should be reflected in their pay.

Kevin McPartland, a senior analyst with consultancy the Tabb Group, says: "It is unreasonable that a trader who generates $1m in commissions is paid considerably more than someone in the confirmations team who catches an error that would have resulted in an equivalent loss."

Risk management has been thrust into the spotlight in recent months, and has highlighted the importance, and scarcity, of good quality staff. According to the report, the back office suffers from a brain drain as the best staff are lured to the more lucrative front office.

McPartland adds: "Unfortunately, a strong culture exists in which many of the best and brightest are encouraged to move into more front-office and/or revenue-generating roles and leave operations management positions behind."

He reckons this wrongly devalues the importance of these functions.

Recruitment remains strong in the risk management space, according to Michael Woodrow, president of Risk Talent Associates: "We have already seen hiring pick up in the present quarter and expect it to remain strong for the rest of the year."

Top-earning risk management professionals in investment banks can earn 150k, with a potential 100% bonus, according to a survey by recruiter GRS.

Another survey by Risk Talent Associates says that risk management professionals have enjoyed a 7% increase in total compensation over the last year, mainly driven by an 11% growth in cash bonuses.

AUTHORPaul Clarke
  • fl
    21 August 2008

    An undervalued part of Risk Mgmt at IB's and BD's is Operations Risk Mgmt, specifically Ops Regulatory and Compliance Risk Control Mgmt. I strongly advise that Broekr Dealers invest adequate resources to maintain a group of industry professionals with experience across the critical product sectors to control the growing risks associated with regulatory reporting, particularly when the report content is 'sourced' from operations. FOCUS reporting is a good example.

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