How is trader compensation calculated at major banks?

[jthetrader]

I really want to understand this in order to see how justified the compensation traders receive is. AFAIK at hedge funds it is simply an eat-what-you-kill affair, if you turn £1mn into £2mn you will get a piece of that £1mn in profit, regardless of the ups and downs of the market in general, regardless of how well you did last year etc

Again, I understand there to be a similar situation at prop trading firms, there is a split between the trader and the firm and so long as he is in the black at the end of the relevant period, be it monthly or quarterly or annual, they split the profit.

However I have heard that bank traders have to acheive a positive relative return, i.e. their performance is measured against some market index, e.g. if they are trading US equities and the S & P 500 has moved by 5% in the last year they are only compensated for the amount they beat the S & P 500 by. Yet I've also read comments on this forum, presumably written by those with a good understanding of this business, that the best traders work for banks not hedge funds because £ for £ you do better working for the former.

So. Any info would be helpful.

 

[anley]

You're trying to get simple answers to very complex questions. There are no standard compensation packages, everything is negotiable, it depends on who you are, what your history is, how much the bank needs you/doesn't need you etc. Many for example can lose money but still earn fortunes due to guaranteed bonuses, others might make big money but get stiffed by management.

Also, plenty of good traders at banks and lousy ones at hedge funds, and vice-versa.

 

[scose-no-doubt]

Why do salaries at private institutions need to be justified? Whether banks are ripping everyone off with what they charge for their services is the question imo? Salaries will quickly adjust to top line. Too cartelish and well connected though so its a fruitless endeavor.

 

[jthetrader]

Why do salaries at private institutions need to be justified? Whether banks are ripping everyone off with what they charge for their services is the question imo? Salaries will quickly adjust to top line. Too cartelish and well connected though so its a fruitless endeavor.

I meant justified in terms of the money they make for the institution, surely the banks don't want a situation where someone's compensation is exceeding their profit, but from what anley says this may well happen due to things like guaranteed bonuses. It could also happen as a result of high salaries.