Poachers pay premium for City stars

THE CITY of London is on a noisy and expensive hiring drive. Top people are being poached with packages that guarantee many of them more than pounds 1m a year.

One of the highest profile hirings in the last few weeks was that of Robert Mapstone, 33. He is leaving NatWest Markets, where he is head of equity derivatives, to join Nomura International as managing director, equity trading and risk.

As one of London's leading derivatives specialists, he must be one of the most desirable traders in the City. All the investment banks are beefing up their derivatives teams to get a share of this expanding and highly profitable, if controversial, business. Derivatives are complex financial instruments for managing interest-rate and exchange-rate exposure.

Headhunters highlight derivatives experience as one of the most sought-after skills. The other is a knowledge of emerging markets - those in the developing world.

But recent hirings have been across the board. NatWest Markets, one of the most aggressive recruiters, has taken Michael Moore, as head of new issues trading, from BNP Capital Markets, and Kevin Arnold, as head of government bond trading, from Lehman Brothers. UBS has tempted John Giannotti away from Bankers Trust to join it as a managing director in charge of fixed-income derivatives and debt origination.

Last week's best-known move extracted Ken Miller, from the investment boutique Lodestar Group in the US, to join CS First Boston as a vice- chairman.

But beneath the headlines of pounds 1m plus pay packages and superstars of the financial world switching sides, competition for the top talent is spurring investment banks to structure pay packages in a way designed to deter job-hopping, keep the top earners in-house, and encourage them to work towards the long-term health of the firm.

SG Warburg's annual report for the year to 31 March 1994, published last week, showed that two directors were paid more than pounds 1m. A large sum of money for a year's work, even by City standards. But read the small print and you learn that a sizeable slug of the money came from long-term performance-related bonuses earned since 1982.

Warburg directors receive their salaries in three parts: basic salary, one-year bonus and long-term bonus. How much is paid into the long-term bonus scheme is determined by a complex formula related to the share price. Directors can take money out at pre-determined times.

In the year to March 1994, three directors elected to take money. One took out pounds 81,000, boosting his total pay to more than pounds 500,000; another took pounds 625,000, boosting the total to more than pounds 1.2m; and the third took pounds 641,000, making a total of more than pounds 1.5m.

Jane Kingsley, managing director of headhunter, Russell Reynolds Associates, said: 'The one thing that we have seen that has made it easier to keep people is that an increasing number of firms have introduced deferred-compensation schemes.'

Smith New Court and UBS have both done this. Typically, bonuses are locked in for three years, and if a person leaves before then he or she forfeits the money.

In some ways, it seems that investment banks are hankering after their old partnership status. Salomon Brothers admitted as much in 1990 when it set up its equity partnership plan, which pays the bank's high rollers partly in Salomon shares.

Another common feature in today's remuneration packages is guaranteed bonuses. People who leave one bank for another are often guaranteed up to two years' bonus.

But big money alone does not tempt the best talent. Martin Armstrong, at headhunter Armstrong International, said: 'It does not matter what we are paying somebody. The glue that holds people together is culture.

'The really sad thing about banks coming in and offering people a lot of money is that they think it is all about money.'

By 'culture', the headhunters mean the best people want to work for banks with a clear identity where the staff work together. At its simplest, this means no one wants to work for an unsuccessful firm.

According to the headhunters, banks with strong 'cultures' include JP Morgan, SG Warburg, Morgan Stanley, Goldman Sachs, Schroders and Barings.

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