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December 8, 2009

Bonuses Up Sharply for Traders

By James Ramage

Most sellside traders at all levels should see their bonuses rise this season.

The caveat, though, is that the composition of those bonuses will change. Stock will make up a greater portion, while cash is expected to diminish. That's the trend for the foreseeable future, according to a new report on compensation in the global markets by Options Group, a New York-based global executive search and consulting firm.

It's all part of the new world of compensation that emerged last year in the wake of the near collapse of the financial system. In an effort to discourage reckless risk-taking, firms are restructuring their employees' pay packages-often with the federal government looking over their shoulders.

The restructuring is happening in two ways. First, the mix of salary and bonus is being weighted toward salary. Second, bonuses are more heavily stock-weighted, with vesting periods of at least three years, the report stated. In addition, many banks' payments can be "clawed" back if the bank's overall performance falters during the vesting period.

"Salary increases, deferred cash tranches ... and clawbacks," the report stated. "All these new compensation structures will change the way bonus pools are distributed for many years to come."

Equities traders at most first-, second- and third-tier firms can expect bonus increases this season of up to 35 percent from 2008--when their bonuses fell as much as 40 percent from where they were in 2007.

Among cash equities trader salaries and bonuses, managing directors will see the largest estimated year-over-year increase, at 50 percent (see table that follows). Vice-president-level prop traders will see the smallest increase, at an estimated 15 percent. Prop trading, with a few exceptions, did not enjoy a good 2009, said Eric Moskowitz, head of compensation consulting at Options Group.

The breakdown by different positions and levels shows that for equity traders, overall compensation will rise, year-over-year, between 15 and 50 percent.

Director-level sales traders can expect bonuses worth up to $750,000, up 40 percent from last year. Meanwhile, director-level position traders are looking at a bonus worth up to $800,000, which is 40 percent higher than last year's.

But much more of that bonus will likely be in stock this year. According to Options Group, a senior-level employee is going to get up to 90 percent of his bonus in stock. That's up from 40 percent two years ago at tier-one banks, when about 60 percent of bonuses were paid to senior-level staffers in cash--at worst the numbers were split 50/50, between cash and stock. The Options Group Intelligence Unit, the research division of Options Group, assembled the figures.

Going forward, the report noted, more of a trader's total compensation will come from salary. For instance, a managing director at Credit Suisse whose bonus once represented about 83 percent of total compensation--with salary at 17 percent--now will have a bonus that's 67 percent of total compensation, against 33 percent salary, Options Group data show.

In an example of the compensation breakdown, about 60 percent of the compensation package for Goldman Sachs, Morgan Stanley, Citigroup and JPMorgan Chase consists of monies allocated for bonuses. For 2009, the four firms collectively have almost $41 billion set aside for bonuses through nine months, according to the Options Group.



Read full coverage of the story, "Bonuses Up Sharply for Traders."



Bigger Payloads

Some Salary and Bonus Figures for Cash Equities for 2009-2010


Equity Position Traders

Director: $150K-$200K base; $650K-$800K bonus; up 40 percent year-over-year

Managing Director: $250K-$350K base; $1.5M-$2M bonus; up 50 percent YoY


Equity Sales Traders

Associate: $80K-$100K base; $70K-$110K bonus; up 35 percent YoY

DIrector: $150K-$200K base; $600K-$750K bonus; up 40 percent YoY

Regional Head, Sales Program: $250K-$350K base; $2M-$3M bonus


Equity Prop Traders

Vice President: $125K-$150K base; $225K-$325K bonus; up 15 percent YoY


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