The trend towards sales and structuring looks set to continue in 2001, as the recent proliferation of electronic trading systems has meant that banks must differentiate themselves not by price, but by quality of service. Julie Ros talks to the market’s recruiters to find out what qualifications the FX industry is looking for in the New Year.
Jobs Outlook & Salary Survey 2001
As we approach bonus season, many market participants will be making decisions about their futures based on the size of these paycheques. However, a number of industry recruiters point out that consolidation in the banking sector is playing a greater role than ever before when making that crucial decision to stay or to go – and this is a determining factor for both the dealers and the banks paying the bonuses.
The bonus outlook looks like it will be healthy this year, according to industry recruiters. “Few among the top 35 banks have been unduly worried about bonus payouts, because most shops have made good money this year,” says Tony Marshall, director of London-based recruitment firm Marshall Warburton.
This is partially due to the good year that most banks experienced during 2000, but also to the fact that banks may be less willing to pay poor bonuses if a good dealer has a bad year. Up to June 30, 58% of the leading 34 FX reporting banks showed year-on-year increases in FX revenues, according to the Profit & Loss First Half 2000 League Table, published last month.
Big bonuses are in vogue, but basic compensation (at least in London) is being capped to be more in line with the US model of lower basic salaries and higher bonuses. “If you’re in a quality organisation with a good infrastructure, distribution network, clientbase and credit rating, you’ll find that bonuses – percentage-wise – are far greater than they were five years ago. So a number of banks are happy to leave bonuses uncapped,” says Marshall. “This model makes more sense to banks that don’t want to front load their budgets, making a far greater case for the bonus element than ever before.”
Banks are reluctant to pay out poor bonuses nowadays – even if a trader has an off year – because of the difficulty and expense of replacing experienced traders, Marshall says. “But at the same time, they’re not going to go over the top, should they raise expectations for next year. The quality of people is generally better today than in the past, and more common sense is definitely coming into the market when paying these staff,” he says.
Marshall adds that there are also likely to be few surprises when the envelopes are handed out. “Banks know what they need to pay to keep staff, and they know what to pay not to keep them,” he says.
“Bonus expectation management seems more popular this year than in any I can remember,” adds Mike Goggin of London-based executive search firm Brookleigh Services. “This might suggest that payments for the year 2000 performance may not be at the top end of people’s hopes. Equally, there is a lot of activity in the market and early investigation of how a bank’s top performers are thinking is key in trying to ensure there are no shock departures the day after their bonus has cleared.”
On the flip side, however, movement isn’t always linked to pay. Often times, management’s strategy has just as much impact on a person’s decision to move, as does pay. Growth opportunities also play a role when a dealer considers an offer to move from one institution to another.
“Big banks are interviewing people from big banks, but there are several factors playing into a person’s decision to leave their current situation,” says Goggin. “Enhanced career opportunities are just as important, if not more so, than salary.”
“Sometimes, it’s more attractive to be a bigger fish in a smaller pond, where you have the chance to enact decisions and take on more responsibilities than you might at a bigger institution,” says another recruiter.
Although the usual movements are expected to take place after bonuses are paid out (generally between December and March), a number of London-based recruiters say considerations about future employment are being made with a view to the longer term.
The accompanying salary survey was provided by Marshall Warburton. It is based on a survey of 27 banks with a respective 60/40 split between medium and large sized institutions.
The salary estimates represent the median salaries being paid by institutions in London, and the bonuses are subject to wide variations, depending upon the performance of the individual, the desk, the business and often, the entire room’s revenues. There are also variations between large and mid-sized banks, which may not be reflected in the table. Salaries in the US tend to be lower in terms of base pay, but with larger bonuses, so as a general rule, the numbers are roughly the same, only the currency symbol differs.
Asia is a slightly different story, as it varies across the region, depending on where a bank’s profit centre is located. Pay in Singapore is probably in line with London, while Tokyo and Hong Kong are slightly better paid, with Sydney less so. However, notes Shaun Porritt of Marshall Warburton, there has been a slight migration by banks in Singapore and Hong Kong to Sydney.
A number of forex recruiters say 2000 was one of their busiest years in recent memory. “Despite the general perception that FX is contracting, there has been quite a lot of movement and expansion,” says Neil Price, senior consultant at Michael Williams Associates in London.
“Notwithstanding the tradition of movement occurring immediately after bonuses are paid at the start of the year, hiring has been consistent throughout the year – a good reflection of a healthy FX market,” Price adds.
But the robust demand for staff is meeting with some resistance among those currently employed. “It is proving difficult to get people to leave their positions for new opportunities, because banks are trying a lot harder to keep their best staff, by offering incentives to stay. In turn, it is becoming more and more expensive to hire good people,” adds Price.
Sales dealers have been in favour for a couple of years now, but increasingly there has been demand for a new, multiproduct, multilingual dealer who is adept at structuring deals for their customers.
“The majority of movement has been driven by sales and structuring, with sporadic trading side moves,” adds Price. “European coverage has been increased considerably on the sales side this year, and this looks to be continuing into the new year with many banks looking to add to each of the their respective Continental Europe marketing teams.”
Sales people are generally frustrated with the short-end of the business, so they are now focusing on longer dated and structured products across a wider range of instruments, adds Brookleigh’s Goggin. “Sales dealers do not want to get pigeonholed in terms of products, or capped in terms of maturity,” he says.
Goggin also sees an increased weighting towards structured product advisory units. A number of bigger banks have recently set up such units, and Goggin believes these desks will be increasingly popular, and begin to play a part in educating the average sales person.
“FX doesn’t necessarily stand for just foreign exchange anymore,” says Goggin. “In fact, there is a lot of interest on both the sales and trading sides for interest rate and FX derivatives personnel. And the average spot trader will increasingly be expected to have a wider knowledge of other products, as he increasingly becomes a risk manager and informed risk taker. As a smaller number of big banks dominate liquidity, the trader’s job becomes a lot about finding the right liquidity pool to execute positions throughout the trading day.”
Traders today are increasingly taking proprietary positions, agrees Marshall. “It’s not so much about being highly numerate or quick to key in deals, today’s traders must be able to spot opportunities. It’s a skill to be able to spot volumes going through the market and being able to take a position on these moves – because it means another revenue stream for the bank,” he says. “Likewise, the average spot trader will increasingly be expected to have a wider knowledge of other products.”
He also sees growing demand for people with interest rate or fixed income expertise, a development he believes is being driven by the institutional clientbase. “This is not only an interesting development, it’s overdue as well,” says Marshall. “Institutional desks are looking for a broader range of skills – they want dealers with more cross product experience, as well as languages.”
At a recent Profit & Loss seminar in London, Cognotec’s chairman Brian Maccaba took a straw poll of the audience about whose jobs would be most heavily impacted by e-commerce developments – trading or sales. The show of hands was two-to-one in favour of traders.
However, it appears that the introduction of e-commerce has yet to fully impact the trading desk. “There has been a slowdown on the trading side over the past two years, but not anything like that of the two to three years before that,” says Goggin.
Generally, recruiters say the introduction of such B2C e-commerce solutions, both within banks as well as the proposed multi-contributor platforms such as Atriax and FXall (both of which have yet to launch online dealing capabilities), are still unclear as to the affect on longer term staffing requirements.
“Right now, e-commerce mechanics are running in parallel with humans,” says Goggin. “If anything, e-commerce has created more jobs, because as yet, it hasn’t cancelled out that many jobs. But over the next three years, e-commerce will definitely put those marginal players – or those that lack the necessary skill sets – out of work.”
Goggin adds that reduced staffing levels have less to do with e-commerce than with mergers and acquisitions. “A much smaller number of players are now controlling the business, but in the e-world, banks will only be able to exist if they have a niche capability or strong franchise, such as the custodial banks,” he says.
Goggin points out that e-commerce solutions are good for conducting plain vanilla businesses, but have yet to make real inroads outside of spot trading. “Structurers are, and will continue, filling a huge requirement for the larger institutions,” he says. “As will proactive off-balance sheet traders.”
Marshall adds that as e-commerce continues to take hold of the market, traders will still have a role to play in terms of working through the more exotic orders, which are more difficult to transact over systems.
“These days, people tend to forget how much actually doesn’t go through the systems. Those that can package up currency risk can make good money, because those are the types of deals that can’t be done on the systems yet,” says Marshall. “From an interbank perspective, dealers will still prefer to work their contacts and the market to generate a return for the bank. This spells more opportunities for proprietary traders, because a mature trader will be able to spot the differentials and turn these into profits – and banks still rely on quality information to make good prices.”
“The trend has been going towards sales dealers for a number of years now. The introduction of e-commerce is pushing some banks to make this transition faster. So I anticipate we’ll see a combination of sales dealers with cross-product capabilities, structurers and good arbitrage and prop traders,” says Marshall. “But market making is a ‘sticky wicket’ because of the transparency these e-commerce systems offer.”
Marshall believes the next three to five years still holds a lot of growth potential for both traders and sales dealers, as a number of “semi-pro investors” get into FX via the various electronic platforms and volumes increase.
“To date, modern technological solutions have had a massive effect on the staffing requirements of traditional money brokers and other voice brokered markets,” adds Goggin. “Hundreds of jobs have disappeared, whether it be at Liffe or in spot FX. The smart companies were proactive and invested heavily in technology early on. The replacement of human beings by e-solutions in banks is going to be much slower.”
It takes a lot of time and confidence to develop a new trading generation. So the changes we are seeing today are just the tip of the iceberg in terms of what shape the industry will take in the years to come.
Profit & Loss / Marshall Warburton
FX SALARY SURVEY, TRADING & SALES, 2001
Average Salary £ Package £ (Including bonus)
Trading & Sales Senior Management
Treasurer 164,000 326,000
Head of E-Commerce 168,000 500,000+
Head of FX Trading 150,000 385,000
Head of FX Sales 123,000 350,000+
Head of Currency Options Trading 125,000 300,000+
Head of Money Markets 94,000 194,000
Head of Forwards Trading 109,000 205,000
Head of Emerging Markets FX 121,000 350,000
Head of Proprietary Trading 120,000 243,000
Chief Dealer, FX 105,000 210,000
Senior Traders & Sales People
Senior Spot Dealer 85,000 150,000
Senior Forward Dealer 76,000 108,000
Senior FX Sales 87,000 225,000
Senior FX Options Trader 85,000 192,000
Senior Proprietary Trader 95,000 255,000
Senior Derivatives Structurer 90,000 230,000
Traders & Salespeople
Spot FX dealer 62,000 112,000
Forward FX dealer 57,000 100,000
Money market dealer 45,000 85,000
FX Salesperson 65,000 115,000
FX Options dealer 74,000 135,000
Emerging Markets FX Sales 68,000 120,000
Emerging Markets FX Trader 65,000 115,000
FX Economist 100,000 180,000
FX Strategist 80,000 160,000
FX Analyst 40,000 72,000
This information was compiled by Shaun Porritt of Marshall Warburton Executive Search, comparing individuals from a cross section of medium sized and large institutions.