Want to Get Paid Like a Trader?

By Carlos Portocarrero

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The other day I was in the car with some friends, all traders, and they were talking about work. The discussion was all about trying to find a balance between making good, aggressive trades without losing a lot of money and playing it safe.

It got me thinking about how traders’ bonuses are given out: they typically get a percentage of whatever money they made for their firm. So that’s why they want to be very careful about the balance between making lots of money and losing it—their bonus depends on it.

And it got me thinking: What if everyone got paid according exactly in proportion to how well they did their job?

For traders, it’s pretty easy to figure out—all you have to do is look at the numbers.

For the rest of us, well, it’s a little more complicated.

Is there a way of breaking down what you do into a formula that you would feel comfortable with? Something as clear cut as a percentage of what a trader makes? Would this be more or less fair than the current system?

If it was done well, it would at least eliminate some of the drama and jealousy involved in knowing what coworkers make. Maybe.

Can it be Done?

Could you really boil down everything you do into a formula? If you work in a sales position or a job where you can directly measure how much money you make for your company, then it’s easy. You just follow the money.

But for those of us that don’t, what should be in the formula? Let’s try to take a crack at the kinds of things that would need to be included:

  • Job performance: This would be really subjective, but it would kind of be like getting a grade. Say from 1 to 10. If you have quarterly reviews and you let your employees know where they stand every step of the way, this would make them work harder (presumably) to get their “grades” up. It may not have worked in school, but you weren’t getting paid in school (at least I wasn’t).
  • Beyond the job: Tough to quantify, but it would again be measured very subjectively by the bosses. Same 1 to 10 scale that measures what you bring to the table that’s outside your given duties. In other words, do you go beyond the scope of your job or not?
  • Extras? This is where it gets tough. What else do you bring to your job? Another language? Specific software knowledge no one else has? This one is kind of hazy.

I’m not sure what else you could possible throw into this formula, but either way it sounds like it would be at the mercy of the bosses and their opinion of your job, which is kind of how it works now, right?

Gaming the System

Sure, some people would try to game the system by just sticking to whatever “factors” make up this formula we’re talking about.

But if you construct the formula correctly, you wouldn’t care if employees gamed the system—it would lead to an increase in productivity and the business would be better off.

Everyone would win. Right?

I’m guessing most people wouldn’t want a system like this at their job—it’s just too rigid and strict. Plus, it’s at the whim of whatever the bosses decide goes into this formula.

But I think it would be an interesting experiment if done right.

What do you think? Would this fly at your job? And if so, what else would you put into that formula?

Some Interesting Reading

Photo by Petrick2008

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8 Responses to “Want to Get Paid Like a Trader?”

  • John Forman Says:

    The problem with Wall Street trading model type compensation, which is heavily based on performance is, as we have seen the last couple of years, that it opens the door to excessive risk taking. It’s the lack of a comparable downside to the upside. I’ve not heard of any compensation scheme (so far) which would claw back from the trader if the individual lost the company money. So long as the reward calculation is skewed to the upside, there will be the incentive to take excessive risk in the pursuit of larger profits.

  • ObliviousInvestor.com Says:

    This is one of the primary reasons I became self-employed (after a couple years working as a tax accountant). There’s something wonderful about knowing that how hard/smart you work will have a direct impact upon your income.

  • The Office Newb Says:

    What would be needed to implement a system like the one you propose would be not only strictly defined goals (i.e. I will write x amount of content this quarter) but also strictly defined job duties so that it would be clear when someone goes “above and beyond.”

    However, I don’t think most companies or managers really have this level of detail for every member of their staff. I personally worked for over a year in a “management-type” job (yes, the title was intentionally vague) where I had no job description and therefore could not really ask for more pay since it was impossible to demonstrate how I went “above and beyond” my normal duties since technically I didn’t have any formal duties.

  • Nut Says:

    I wonder what a CEO of a trading company would say to all this. Maybe something like “Hey, we all wind up making more money so that’s why this works for us.” But this goes back to the whole “trading is all about making money,” where most other jobs have a much more indirect relationship to money.

  • Roger Says:

    It’s an interesting concept, but I think it would fall apart in many positions. For example, I was a QC analyst in my last full time position, and it would be hard to come up with a way to properly measure our activity. The number of samples that were tested depends on how many were produced, speed with which those tests were completed was sometimes out of our control, and the quality of the samples (the ratio of passes to fails) didn’t depend on our actions. (To say nothing of the fact that basing compensation on the quality of the samples received would promote fudging of the numbers.) I can’t speak about too many other positions, but I imagine that similar problems would arise with other job situations.

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