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Should back office pay be aligned with the front office?

To the 'big swinging dicks' 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 new report suggests this imbalance is unfair and should be rectified.

A wide-reaching 176-page study 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 salary 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
  • Ge
    29 August 2008

    I work in trade support and agree most people I work with are idiots who only know what button to press but dont know why they are pressing the button most do not understand any of the economics or theories behind products and trading stratigies, hence why i am doing my FSA exams and moving on. But mind you there are some bright people in BO. Most tend to be in the Hedge fund arena. BO at a HF and at a Investment bank or big Asset manager are two diff animals. due to the small nature of most HF's you have to be Multi skilled and i was carrying out many FO roles while being classed as Mid office at my last HF.

  • Ch
    28 August 2008

    Has anyone heard of a guy called Phil McGuire? He is currently revolutionising the BO with his ideologies on tight pant management!

  • Ec
    Economics Grad
    27 August 2008

    I am a BO worker. I respect the traders for what they do, but ive spent a long time unravelling what they thought they traded and telling them how to rectify it when I call other banks to ask for funds and find we actually owe them. How about revauing the wrong leg of a mtm trade anyone?

  • MB
    MBA & CFA Grad
    27 August 2008

    Controlling costs will never be as sexy as generating revenue growth. People like to see a line graph pointing up, not down. Back office staff will always be paid less than front office.

  • De
    27 August 2008

    Peoples pay generally reflect how much it costs to find an adequate replacement for that role, ie whatever the market rate is for that role. I work in the front office on a bond desk for an asset management shop, and I know that our back office are well trained and do a good job, but I also know its not hard to train another person up in a few weeks to replace them. There are always plenty of people to join the BO as anyone with a bit of experience can do it. This keeps a ceiling on any pay rises they request. Where as if we were to replace front office guys, their specialist knowledge is a bit harder to come by as trading experience + academic qualifications are mandatory. I know in our firm that a minimum of a masters is expected and they prefer people to have at least started their CFA qualification. This doesnt make them particularly special, in fact qualifications to me are just a filter to sort the wheat from the chaff, it doesn't automatically mean they are going to make us a fortune trading . Basically, the more specialised a role is, the higher the salary is for that particular role. It boils down to simple supply side economics.

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