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Traders will now need to be very, very nice to people in risk

Fortunately, the G20 didn’t say anything horrible about banking pay, except that it would ‘endorse and implement the FSF’s tough new principles.’

In turn, the FSF’s new tough principles follow the example already set by FSA and insist that risk considerations must weigh heavy in decisions about bonus size.

Eg.

Compensation must be adjusted for all types of risk. Two employees who generate the same short-run profit but take different amounts of risk on behalf of their firm should not be treated the same by the compensation system. In general, both quantitative measures and human judgment should play a role in determining risk adjustments. Risk adjustments should account for all types of risk, including difficult to- measure risks such as liquidity risk, reputation risk and cost of capital.

It would be nice to think that this might lead to a rush of risk hiring, but this doesn’t seem to be the case. “One would hope the risk people are already monitoring levels of risk,” says the head of comp at one US bank.

Paula Maidens, director of risk and compliance recruitment at Robert Walters, also says risk hiring isn’t about to rise because of the need to align bonuses to risk profiles. She does, however, say that most banks are still recruiting in risk, despite having hiring freezes in other areas.

The head of comp says the main impact of the new rules will be a change in traders’ behaviour. Namely, they will need to be a lot more charming to risk people, because risk will now determine the size of their bonuses.

Comments (3)

Comments
  1. Would it be correct to say that risk managers and traders have the same skill set?

  2. @ ahmara,

    I would say yes especially QuantRisk people who are sometimes more technical than traders

  3. This needed to happen frankly,
    I’ve lost count of the number of arguments that I’ve witnessed between a trader & a risk mgr.(echos of HBOS..)
    such arrogant brown-beating of risk mgrs when they query (quite reasonably) FO MTM’s has absolutely contributed to the mess we’re in. Best term I’ve heard on this is that the FO ‘were marking to bonus rather than MTM’..a key-point now that the tide has gone out.

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