eFC Briefing: Bank of Canada Stiffing Its Own Research?

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Review panel concludes that Canadian central bank's low salaries hurt research quality. Prospective buyers of Lehman funds division fret about cost to retain staff. UBS reorganization may shift bonus money from investment bankers toward wealth managers.

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Canada's central bank would have to boost starting pay for economists by 16 - 22 percent to realize its stated objective of fielding a "second-to-none" research department, according to a report by a panel of U.S.-based economists commissioned by the Bank of Canada itself. The report says current Bank of Canada salaries for entry-level Ph.D. economists, at $90,000 (Canadian), fall near the median for second-tier Canadian universities and far below comparable positions in U.S. universities or global policy institutions. The panel also called for raising salaries for senior economists and awarding variable pay based on research publications, conference presentations and other activities that signify a researcher's visibility and impact in the profession.

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The threat of defections is shaping up as a critical obstacle to Lehman Brothers' move to shore up its balance sheet by selling a stake in its asset management division. CNBC reports some big-ticket private equity firms are balking at Lehman's proposed price of $7 billion for a 70 percent stake in the division, because a buyer would have to set up a retention pool of perhaps $500 million or else "the talent will walk." Meanwhile, Lehman continues its quest to attract a major Asian investor to buy up to 50 percent of the entire company.

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A corporate reorganization unveiled by UBS could channel a greater share of the bonus pool toward private bankers at the expense of the struggling investment banking division. UBS plans to separate into three units and "will align incentives for management and staff of each autonomous business division directly with its financial results" and degree of risk. The bank is expected to unveil the new bonus structure during the fourth quarter. It's also expected to take action to improve staff retention rates, according to the Financial Times. Tying compensation and bonuses to individual unit performance rather than group-wide results will tend to favor private-client wealth managers and hurt investment bankers, the FT observed.

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Openings for financial advisors abound in Chicago, especially entry-level jobs at wire houses and brokerage firms. The demand is part of a nationwide trend. Citigroup's Smith Barney wealth management business is advertising openings for advisors across the Chicago metro and suburban area. Merrill Lynch has multiple listings in the area for "Registered Client Associates," which provide sales support to financial advisors. MassMutual Financial seeks professionals who would prospect and develop client relationships and recommend appropriate financial solutions. AXA and Morgan Stanley are also seeking advisors.

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The contribution that operations and risk management staff make to the bottom line should be reflected in their pay, according to a report by the Counterparty Risk Management Policy Group, whose members include Goldman Sachs, HSBC and Morgan Stanley. Says Tabb Group analyst Kevin McPartland: "It is unreasonable that a trader who generates $1 million in commissions is paid considerably more than someone in the confirmations team who catches an error that would have resulted in an equivalent loss." According to the report, the back office suffers from a brain drain as the best staff are lured to the more lucrative front office.

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