Risk managers' salaries and bonuses soared in 2005, says study

The company's 'professional compensation survey – capital markets', which polled more than 500 risk professionals worldwide, found those with more than 16 years of experience and earning salaries of about $204,000 in 2005 received average bonuses (cash and non-cash) of $343,000 in 2005, up 15.8% from the previous year. The percentage increases in bonuses were even more pronounced for the less experienced. Those with seven to 15 years of experience and earning salaries of approximately $166,000 received bonuses totalling about $210,000 in 2005, up 51% from 2004. And those with up to six years of experience and making around $124,000 received bonuses of about $146,000 last year, up 66% from 2004.

The survey also found that chief risk officers’ total compensation increased from just over $800,000 to $1 million between 2003 and 2005, of which about 70% was made up of bonuses.

Michael Woodrow, president of Risk Talent Associates, said: “It is no surprise that bonuses are up substantially in 2005. We all heard the news that capital markets firms had considerable earnings last year. As expected, they compensated their risk people accordingly, as sound risk management systems and practices allowed firms to take smarter risks that paid off.”

Woodrow also noted that 17% of survey respondents reported changing their jobs in 2005, although most chose to stay within investment and commercial banking. He added that demand for exceptional risk managers has become very tight, spurring a sharp rise in compensation packages in the industry. “There is a developing trend that top risk managers, at all levels, who have seen increases in stature and compensation, are less likely to change firms," he said. "Last year, we saw several examples where firms refused to allow their top risk managers to go to their competitors. Hiring firms should understand that a candidate’s current employer will likely try to match an offer.”

Figures specifically for Asia-Pacific were not available, but Woodrow notes the region is also experiencing a shortage of risk management professionals. “As the US and UK markets grew, they borrowed talent from other areas – finance, product control among others - and these individuals grew their skill sets as the risk management market matured," he says. "The challenge in Asia is that risk management principles and practices have matured, but the market doesn’t have the local talent pool to deal with the sophistication. We are witnessing firms relocate individuals from the UK and US, who will in turn build and train local teams.”

Despite the huge growth, Woodrow believes the bonuses are not overly inflated. “The hedge fund markets continue to grow, these firms and their investment banking trading partners continue to take on more risk. They need to manage this risk to be profitable and to stay in business," Woodrow said. "I don’t believe that bonuses and compensation in Asia are inflated. They are market driven – these firms are experts in paying the compensation they need to keep the people they want.”