Companies Risk Gurus Are Headed Towards Different Pay Structures

March 1, 2011

Chief Risk Officers at investment banks have a tough job.  They are often hated (or at least constantly hassled) by the bank’s most profitable traders and salespeople because they scrutinize trades and transactions from a risk perspective.  Traders care, but often ignore risk, and salespeople are looking to increase commissions, which can be large on riskier (and therefore higher yielding) transactions.  But, risk officers also generally benefit by riskier transactions through bonuses, so there is an incentive to approve trades from a risk perspective.

The Financial Times has a good article here about how banks should follow the lead of insurance companies to start to move away from that pay practice.

For investors, a strong and independent risk management department is helps to reduce the risk that someone’s investment will go south because of overeager traders.

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