Retaining top risk talent is both an art and a significant financial commitment. Compensation structures have long been designed to incentivize performance and loyalty, especially in front office functions, but in recent years, retention packages— or ‘golden handcuffs’—have become increasingly binding for risk talent. As risk teams, for the most part, position themselves more commercially, particularly within first-line functions embedded in trading businesses, firms are finding themselves locked in a battle to keep their best people from being poached. Consequently, the golden handcuffs slapped upon high-performing risk talent are increasing in weight and karats every year. The question is no longer just how much it costs to attract top risk professionals—but how much it costs to keep them.

Old School

The old-school 2LOD risk professional risk tends to prioritise their fixed package when considering employment offers; a top-heavy offer on base salary and soft guaranteed benefits is the most compelling. These folks often sit in bigger institutions where risk is defined as a control function rather than a profit driver, and as such, bonuses have historically been fairly predictable and are often partially locked up in deferral schemes. Typically, around 30-50% of performance bonuses are delayed in line with vesting periods of 3-5 years. These schemes allow for accountability clawbacks in cases of misconduct or major firm losses—Credit Suisse in 2021 is a prime example, where senior risk personnel faced clawbacks post-Archegos scandal, though retention bonuses were concomitantly paid elsewhere in the risk team.

It goes without saying that if talent leaves during the vesting period, they forfeit the unpaid portion of their bonus. Walking away from 50% bonuses accrued over 5 years can represent a loss of £50,000+ at the more junior end and up to £500,000+ at the senior end. This is a major deterrent for a risk officer, likely to be analytical and conservative by trade, and thus less inclined to yield to speculative future compensation growth and leave money on the table with their current employer. Consequently, competing employment offers need to represent a significant bump on package that covers what was left on the table in the short term, as well as providing the typical uplift of 15-20% expected when jumping ship. Relocation to low-tax jurisdictions, effectively circumventing retention constraints and enabling compensation growth, can be a viable solution here, albeit a very rare one. Ultimately, in the case of old-school risk talent, golden handcuffs do their job well.

New School

On the other hand, a new breed of risk professionals is emerging—those who see themselves as part of the revenue-generation side of the business rather than purely a control function. Whether these individuals sit within an embedded 1LOD risk team at a bigger institution or are part of a small risk team within trading houses/funds, they look to align themselves more closely with P&L performance, both on a product desk and firm-wide level. As such, their retention packages increasingly mirror those of traders, with vesting periods on Restricted Stock Units and stock options rather than traditional deferrals. Unvested stock ownership must be transferred back to the firm upon departure, and some firms even impose post-exit holding periods, preventing employees from selling their vested stock for a set period after leaving.

Deferred equity participation is particularly compelling in high-growth firms such as commodity traders and funds, where share price can increase materially over 5 years. But at banks, deferred equity participation sometimes doesn’t bind the golden handcuffs enough on talent, especially if they are competing with high-growth buy-side/trading shops. While equity incentives are more palatable to get sign-off on than large upfront cash fees internally, the new school risk professional may be more enticed by stock potential elsewhere.

Regulated vs. Unregulated Markets

We see, then, a mismatch emerging between compensation structures on the institutional/sell-side, and the buy-side/trading houses. This is largely down to regulatory oversight. Ultimately, highly regulated banks must reinforce their risk function as gatekeepers rather than profit enablers, despite the increasing number of embedded risk teams reporting up to business within banking divisions. This friction provides opportunity for the buy-side/trading houses to poach talent, given that their less regulated environments recognized risk professionals as playing an integral role in capital allocation and performance optimization. Consequently, the lines between business and risk become blurred, as do the compensation packages around risk professionals.

Ultimately, not all that glitters is gold — the burden of golden handcuffs is contingent upon a risk officer’s own professional inclination and the institution they sit in. However, given the scarcity of high-performing risk talent, we expect retention packages to continue tightening, particularly on the buy-side. The most effective tool banks have to combat this is by offering heavier on base salary and guaranteed packages, though this of course may appeal to the classically minded risk officer more than it does to the commercially minded one.

Eversearch provides executive search and modern talent solutions exclusively to the risk and finance sectors.

We are true sector specialists and partner with a select group of core financial services clients that demand best-in-class talent. Many of our clients have partnered with us over several years. We are an extension of their in-house talent strategy and are trusted advisors. We know their operations well and have great instincts on how to navigate challenging talent pools to deliver consistent results.

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