After a bumper year and a rush of hiring, recruiters say equity derivatives specialists are on track for bigger-than-ever bonuses.
"If banks want to retain people in equity derivatives they'll need to pay bonuses that are 10% to 30% up on last year," says Doug Hanslip, a specialist equity derivatives consultant at Korn/Ferry International in Chicago. "Equity derivatives hiring is definitely very hot right now," he adds. "It's a fairly finite universe and there aren't enough of these people to go around."
Mike Karp, the co-founder of Options Group, a global executive search firm, is equally bullish: "Bonuses will be higher than ever," he predicts, "There's a real large demand for structured equity folks and my guess is bonuses will be up 25%. If banks don't pay up, there's enough poaching that can happen with rivals looking to hire."
Third quarter results reflect the strength of the equity derivatives sector. At Bear Stearns, for example, equities revenues surged 43% in Q3 due to higher risk arbitrage, equity derivatives and sales and trading revenues. At Goldman Sachs, equities revenues rose 75%, fuelled by strong increases in trading.
Hanslip says most banks in the US are interested in adding to equity derivatives teams, as are hedge funds. Recent hires show the trend: BNP Paribas raided Nomura for five equity derivatives traders for its US team in early September. At the same time, Barclays Capital announced plans to hire ten more equity derivatives traders and salespeople for the US, following five senior hires in the four months previously.
A shortage of experienced staff means search firms are sourcing equity derivatives candidates from previously off-the-radar sectors such as risk management, says Hanslip: "There are a lot of people in risk that have deep quant skills."
Karp says a vice president in equity derivatives trading can expect to earn $1.2 million to $1.5 million gross this year; he says a VP in sales can expect $1 million.
London in Lockstep
Recruiters report a similar state of affairs the other side of the Atlantic. Nick Kerrison, a director at recruitment firm Mantis Partners, says banks are falling over themselves to hire good equity derivatives people and paying elevated packages in the process.
"The people who moved this year have been going for 50%-100% more than they were paid last year," he says. "On this basis I'd expect bonuses in equity derivatives sales and trading to be up around 50% at the end of the year."
David Korn, a director at Options Group in London offers a more restrained prognosis: "Bonuses in equity derivatives will be up 10%-20% on last year," he predicts, "Equity derivatives guys are responsible for an increasingly broad range of products, including portfolio trading, algorithms, advanced execution services, listed, OTC and all exotic and hybrid products. With increased revenues again for 2005, they will be entitled to expect pay that reflects that."
Dresdner Kleinwort Wasserstein, Bank of America, Barclays Capital and Calyon have all hired equity derivatives professionals in Europe in the past month, with Bank of America alone adding eight equity derivatives sales people and traders in London in early September.
Pay in London may be below New York. Kerrison says a junior vice president in equity derivatives trading can expect a total package of between 250,000 ($444,000) to 300,000. A VP in sales working with OTC equity derivatives can expect 200,000, while a VP working selling more exotic products can expect 300,000, he says.