Ian Brown, editor-in-chief of eFinancialCareers, bites on the lucrative world of buybacks.
Good people leave bad managers, not bad firms. So the saying goes, but as always, throwing a lot of comp at good people to get them to stay never hurt. At least not right away.
I'm talking about the buyback, where firms 'buy back' a star who has got a better offer elsewhere. The sums to retain such talent can be stupendous, but at best buybacks are a short-termist strategy and, as a retention tool, expensive.
Barbara Larsson, a DCM, fixed income and credit derivatives headhunter with Stephen Raby Associates, gave me the following buyback example as I shadowed her at work for a day this week: By a recent Friday she had headhunted a candidate, who was on 650,000 total comp, out of his firm. The following Monday, said candidate had his final exit interview. He was offered 1.1m to stay on.
That's just short of doubling your pay in a day.
Larsson's disappointment at the candidate's obvious choice was matched only by the size of the new offer. She knows he will be back on the market likely sooner than later, probably wondering why he wasn't always paid a cool million and more.
Of course, buybacks apply to the top 10% or so of front office revenue generators. The great unwashed - the bottom 10% and the 80% in the middle - aren't risking sticking their heads above the parapet. A JPMorgan derivatives flow trader mate of mine tells me, "No one is leaving the bank who doesn't have to."
Most of the movement in the market right now is coming, therefore, from the unlucky few who are being terminated before bonus day - leaving all the more money to buy back those good people who think they want to move but can be persuaded to think twice.