How compensation works in FinTech

This is the third in our series of posts about technology in financial services, mainly intended for those who are new to this space. Max answers the question: How does compensation work for technologists in the financial services industry?

This is a very important matter for anyone who is interested in a tech career in this vast universe of companies.  I will try and summarise the different types of compensation structure on offer.  However, before we get into the detail, I would refer you to one of my previous posts on Freddy and Happiness at Work.  It points out that compensation is an important ‘hygiene factor’.  This simply means that it is a factor that has to be in line with the market rate of pay for your role.

We at untapt firmly believe that those who are tempted to work in financial services PURELY for the allure of making millions are driven by the wrong motivations:  the compensation structure for your role must be fair and has to combine with the MOTIVATING FACTORS in order for you to achieve HAPPINESS at work.

Keep that in the back of your mind and have a look at the way in which different firms compensate their technologists:

Banks

The compensation structure for a Developer in a bank is typically made up of a Base salary and a Bonus.

The base salary for a technologist in banking is typically in the upper quartile when compared with salary levels in other industry sectors. The sector still remains one of the highest paid industries for technologists. The salary bands for technologists are consistent across the various functional areas of the bank.

The bonus level for technologists is determined on a discretionary basis (there is not a formula for its calculation). However factors that are considered when making these decisions typically include how well the firm did, how well your team did in delivering, how well you did personally both in delivery and teamwork, and how you currently compare to the market. These factors will also go into base salary adjustments. In most banks today, there will be a threshold for how much of the bonus is paid as a cash payment. Any bonus above the threshold level is paid on stock that then vests over a two to three year period. Typically, the bonus is announced either in December or in the first quarter of the following year.

Hedge Funds

The compensation structure in a hedge fund is also made up of a base salary and bonus. The base salary levels in the best performing systematic hedge funds can be on par with salaries paid by top-tier investment banks. The bonus level for a developer is based upon the performance of the fund in any given year. The fund manager is paid a 20% performance fee by its investors i.e. if it generates a return of $100m, then the performance fee is $20m.

The bonus pool is then derived from this performance fee and, dependent on the fund strategy, the developers (especially in a fully systematic fund where there are no “human traders”) are paid a proportion of this bonus pool. The bonuses paid to developers in the best performing systematic funds can be significant especially where their contributions can directly expand the profitability of the business.

Startups

The compensation structure for a developer in a FinTech startup is typically composed of a base salary and stock options. The base salary level is often competitive with the median level salary in a bank or consulting firm. The most attractive incentive for entrepreneurial developers remains the equity component because this can be worth millions of dollars in the event that the company becomes fit for an IPO or acquisition.

Startups rarely pay bonuses. There are situations where a bonus payment is linked to specific milestones that need to be achieved, for example a product release that triggers a further funding round.

It’s important to find a company who’s compensation structure suits your work style and risk tolerance. It’s all part of finding the next career opportunity that’s best for you.

Max

Max Kantelia
Head of Strategy
max@untapt.com

Max is co-founder of untapt. He is also a seasoned Fin Tech entrepreneur and executive recruiter, as CEO of McLaren Global Partners, a global executive search and strategy consulting boutique. Completely unflappable, he makes it all look effortless. Not only is Max our sartorial spirit animal, he is everyone's Uncle Max and the person we go to for advice. While easily one of the nicest guys you'll meet, don't be fooled. He drives race cars pretty well.

Max is co-founder of untapt. He is also a seasoned Fin Tech entrepreneur and executive recruiter, as CEO of McLaren Global Partners, a global executive search and strategy consulting boutique. Completely unflappable, he makes it all look effortless. Not only is Max our sartorial spirit animal, he is everyone's Uncle Max and the person we go to for advice. While easily one of the nicest guys you'll meet, don't be fooled. He drives race cars pretty well.