Sell-side traders’ salaries have been coming down over the past four or five years, and there are fewer trading roles within the U.S. bulge-bracket banks. In addition to pressure to cut costs, many banks simply need fewer traders as electronic trading continues its ascent.
So how much can a trader expect to make at a bank or broker-dealer in the U.S.? Are salaries and bonuses spiraling down the drain as banks reduce headcount, or are there still decent opportunities in the trading game?
“Fixed income traders’ headcount is down about 20% from its 2008 peak, while equities traders’ headcount is down approximately 30% over that timeframe,” says Paul Webster, managing director and the head of Page Executive in North America.
On the other hand, sell-side traders' total compensation did increase from 2015 to 2016, according to Selby Jennings.
Dodd-Frank has ensured that banks have done away with high paying proprietary trading jobs and are just serving clients in their markets divisions. A lot of prop trading talent has gone on to make big money at hedge funds, but what can you expect in sell-side trading jobs now?
“Some traders are still making the seven-figure amount that they all seek, but it depends on the bank – U.S. institutions tend to pay the best, as European banks are held back on the size of bonuses they can offer, usually no more than twice the base salary, although they’ve found ways around it,” says Dylan Pany, principal consultant and the head of the trading team at Selby Jennings.
Traders are typically paid 15% to 20% more than salespeople at the same firm. While they are all limited to the same range of base salary based on experience, looking at total compensation, traders tend to make better money due to bonus upside, Pany said.
Equity traders have been paid the most, because there’s the most opportunity to make money in those markets currently, whereas fixed income and foreign exchange has hit hard for the past five years. Structured products and structured credit, for example, MBS, CMBS and CDO traders, have been their pay shrink the most, says Pany
“You’d think reducing headcount would free up money for the bonus pool but that hasn’t been the case,” he says.
While cost-cutting has stung mid-level and senior traders alike, there is still plenty of opportunities for junior traders as banks roll out 'juniorisation' initiatives on the trading floor.
“The street is a little bit top heavy, and some U.S. institutions are looking to increase the number of graduates in their incoming class,” Pany said.
A lot of banks have been made pretty drastic cuts to trading desks, now they've realized that those cuts may have been too deep and are bringing in new talent.
“Tier-one banks that have made deep cuts are in replacement mode right now,” Pany said. “They can’t operate with the staffing levels they have, so they’re making competitive counter-offers to top-performing traders who give notice, because they can’t afford to lose many more people. I’ve seen some pretty ridiculous counter-offers for traders in the past six months, because the bank can’t afford to lose someone on that trading desk and find someone else to fill that seat,” he said.
Fresh out of an internship or summer analyst program, fixed income traders can earn a base salary somewhere between $60k to $75k, with their bonus probably between 50% to 100% of that, according to ViableMkts. After they earn a promotion, their salary will likely go up to the $80k-to-$100k range, with the cream of the crop earning a 100% bonus on top of that.
Once fixed income traders reach VP level, their base goes up to between $120k and 150k, with their bonus ranging from 60% to 100% of that base, typically all or mostly cash.
“How soon you earn a promotion depends on your production and how well you excel in your seat – it could be two years, it could be five,” said Anna Shtromberg, a principal at ViableMkts and a former director, credit trader and senior portfolio manager at National Australia Bank. “Director and above are very much at risk as firms attempt to cut costs – those senior traders represent the bulk of the layoffs.”
Fixed income traders at the director level typically earn from $250k to $300k in base salary. Executive directors can make a salary around $400k on the top end. Managing directors earn a base anywhere between $400k and $500k.
At those levels, their bonus is purely discretionary, although some traders are able to negotiate a percentage of the revenue they generate, often in the 5%-to-10% range, based on the P&L of their trading book.
“At director level and above, your bonus is not only depending on your own performance – it’s also depending on the firm’s overall performance,” Shtromberg said. “The percentage of stock compensation versus cash increases as you move up the ladder – a lot is in stock, and there are deferrals and claw-back provisions, so your comp might be very delayed.
“In some cases, the cash portion of a bonus for a managing director-level trader may be as low as $200k, with the remaining portion in stock,” she said. “If the firm’s doing really badly, though, even if you are doing great, it’s not going to help you.
“Your bonus doesn’t fully depend on what your book made, hence the huge amount of turnover, people whose books are making a lot of money and feel they aren’t being compensated fairly moving to the buy-side, typically hedge funds or private equity firms.”
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