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Should back office pay be aligned with the front office?

21 August 2008

Paul Clarke

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.

Comments (28)

  • what rubbish, bo staff are 2nd 3rd tier people and should be paid accordingly, they are usually the people that were worst in class during academic life.....

    bohater 20 Aug 2008

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  • They may be those that "were worst (sic) in class" but they weren't the numptys that lost £500 m.

    Wizard of EC1 20 Aug 2008

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  • Bohater demonstrating exactly the kind of poor attitude that has left his industry in a very sorry state. If in fact he is a FO professional and not just another bitter, twisted job seeker.

    I think Bohater is completely missing the point here and is obvioulsy  an academic snob. Best place for academic snobs is probably academia, where they can happily co-exist with lots of other individuals who lack inter-personal skills, have massive egos and posses absolutely no common sense.

    Bohater  should rememeber academic achievement is not necesarily a measure of intelligence.

    That point aside, I think the article here is referring to the old addage - pay peanuts / get monkeys. No point in having a football team made up of goal hangers. You need some talent at the back as well. Yes you should reward people who score goals but you also need to reward those that prevent you conceding own goals. Looks like the securities industry has been scoring massive own goals for the past two years and only realised once the final wistle had been blown.
     
    As usual its a serious lack of intelligence in FO and a large amount of excessive greed  that has allowed this to happen.

    opsrecruiterandproudofit 20 Aug 2008

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  • Yo bohater. If your so smart build a time machine and go live in Nazi Germany where you can discriminate all you want. If you where intelligent you would be studying economics or psychology and trying to work out why people struggle academically. You obviously have no idea about how society affects people. You may be lucky to be in a position where you think other people are second rate. Prove to me its not just luck!

    ChasDarwin 20 Aug 2008

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  • Bohater, you sound like some jumped up, clueless graduate trainee. Probably a spoon fed public school, Oxbridge drone too. Trust me, you'll end up working for the Big 4 before long.

    In my experience, having worked to the front office from the back office via middle office, operations are absolutely essential to P&L. A trading department would lose most of it's P&L if it weren't for the back office keeping everything in line. Given that most traders and PMs are talentless chancers who are vastly overpaid, operations staff should be paid alot more for the responsibility that they handle. Incidently, most hedge fund failures are due to operational loss. Moral of the tale - give back office the respect they deserve. It might not be glamourous or exciting but it's absolutely essential.

    Bohater hater 20 Aug 2008

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  • back office are like the wheels of a car...without the wheels the engine can rev as much as it wants....but it wont go far.... I dont think people realise how hard back and middle office people work and the slack they get from the higher paid colleagues.... maybe they dont need to be aligned with front office but for sure they need to be paid much more...
    Mr front office just think what woudl happen if all of your back and middle office colleagues walked out on strike for a week.... now ask yourself how valuable they are....

    jonnybgood 21 Aug 2008

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  • All these analogies and arguments used for justifying BO pay is so ridiculous.  Just because a BO person spots an error and save £££ for the bank doesnt mean he should be paid equivalent money since that it is essentially his job.  A doctor doesnt get all my life savings paid to him just for saving my life although if a situation arose  where I had to choose between my life and my money I would gladly pay the doctor.  Likewise if a set of wheels doesnt want to drive my engine then I will simply buy another set of wheels who would be happy to do so.

    I am for raising the pay for back and middle office but at the same time I would want the standard of personel to be raised.  Indeed if the standard of personel was equivalent to those at the front office, those FO people would naturally have more respect the BO.  The reason why FO folks have an ego issue is that for alot of them they have gone through life making plenty of sacrafices to get the academic qualifications they have.  Why should some who cruised through school and life enjoying themselves to the max then be provided with similar opportunities.  Most people can do a FO job but the question is do they deserve to?

    Ex FO man now MO man 21 Aug 2008

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  • I work in HR, and believe me, there is no academic gap between front and back office. Someone may have a first class from Oxford in computer science, but will probably end up in back/middle office because of the nature of work. 

    Banks are currently living on government handouts because of the 'brilliant brains' in the front office.

    Alexa 21 Aug 2008

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  • Think everyone is missing BO haters point. To get onto a desk, u must posses a sterling degree from a top uni, and then pass numerous psychometric tests. On our recent intake we grilled the grads...trust me, the interview process in the BO is easy and doesn't require a sh*thot candidate. When i interviewd for my role, I was asked about the NZ yield curve and its impact on long term bonds and i-rates. I have friends in ops and the hardest quest they got was could they use excel....so NO they shouldnt get paid as much as us!!!!!!

    Brent 21 Aug 2008

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  • The assumption that there is any real difference in "standard" of people between FO/MO/BO is erroneous. I’ve met some rather dim Traders and likewise a BO chap with a PHD from Oxford ( hardly cruising Ex FO man). Some very bright people choose not to join the FO and prefer the challenges of the BO or a support environment like IT.  Essentially they all have different roles, all requiring above average smarts. I agree, the BO should be paid more, having said that the Traders live and die each day on the risks they take to generate revenue….. the BO don’t have this type of stress  …… they have another type of stress like making sure ALL the Traders’ cash flows and ALL deals are settled – this is the sort of stuff that causes stomach ulcers.

    Also - need to edit my earlier post - the "brains trust" of the collective FOs have lost  £500 billion, not £500 million.

    The FO will lose autonomy as a result of the current situation - the Regulators are growing teeth. Expect more "A streamers" in regulator roles and BO control roles.

    Wizard of EC1 21 Aug 2008

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