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FX comment: Expect musical chairs to start shortly

It’s that time of year. It’s important that business gets off to a steady start but there are also all those appraisals to write and remuneration to negotiate. It is never an easy process but, from what we are hearing, it could be more fraught this year.

First, there’s performance: 2009 was a good year and prompted ambitious targets for 2010. The word regarding FX trading and sales is that, while some houses are letting it be known that 2010 was great, a fair few, a sizeable majority even, have undershot by 25% or so. That is not conducive to a bumper payout.

Second, the tendency to keep hedges simple – where pricing is most transparent and spreads are narrowest – will continue to subdue sales margins.

Third, there’s a tendency to steepen the bonus curve: performers get paid well, non-performers get zilch. Not only that but sources reckon the remuneration committees will focus on total compensation: if the basic salary has gone up by anything appreciable, underperformance will hit the year’s bonus even harder.

Fourth, there’s the regulatory regime and the changed structure of pay packages. Basic pay may be up but bonuses are partly deferred, partly paid in subordinated stock and taxed (for those fortunate enough) at 50%.

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