Team buyouts, reverse brain drain new trends

Team buyouts, reverse brain drain new trends

Last November, a senior vice-president in a local brokerage firm made a killing when he moved to an international competitor. As he was leaving in the middle of the financial year, he was offered a double sign-on bonus—one payout compensated him for the full-year’s bonus he would have got on completing a financial year at the domestic brokerage, and the second payout was promised for the next financial year. Obviously, sign-on bonuses are no longer meant to compensate salary loss. They are used to lure senior professionals.

This is one of the ways international financial services firms are trying to attract talent and build up teams. But, wise to this, local players have upped their ante, matching not just the salary, but also offering equity stakes in their companies, providing an entrepreneurial platform to create a business unit from scratch.

Indian markets as represented by 30-stock Sensex have returned 36% annually for the past five years. Nearly 60%, $35billion (Rs1.4 trillion), of the $59 billion invested by foreign investors in Indian markets, has come in over the past four years. This has attracted global players such as Morgan Stanley Investment Management, Goldman Sachs Group Inc., Lehman Brothers Inc. to either start a full-fledged financial services business or expand existing operations in India. Since 2006, Goldman Sachs and Morgan Stanley Investment Management have both parted ways with their domestic partners—Kotak Mahindra Group and JM Financial Services Pvt. Ltd and started their own broking and investment banking business in India. Merrill Lynch took majority control in its domestic joint venture with DSP Group in December 2005.

More players in the market have led to a huge talent crunch in domains such as institutional broking, sales, equity research, fund managers and investment banking. Now headhunters and executive search firms are getting mandates to do team buyouts, wherein, they identify a team leader who can get his team members along. “It’s a quick-fix solution. Instead of wasting time in finding a senior professional and then looking for others to work for him, team buyout is a quicker way to set up a new business unit," says Firoze Patel, senior client partner, financial services at Korn/Ferry International, India, an executive search firm.

Puneet Singh, partner at Delhi-based Executive Access (India) Pvt Ltd,declines to name his clients, but says that his firm has been getting team buyout mandates, which involves bringing back ex-employees. “We try to identify an ex-employee of a company who may be in touch with 10 ex-colleagues and is capable of bringing them together as a team," explains Singh.

At another firm, a senior executive said he was trying to place four members of an international broking firm with a domestic one for an aggregate sign-on bonus of Rs22 crore.

Sometimes, the hunt for a team has led to an acquisition. Lehman Brothers acquisition of the Brics Securities’ instituitional broking team is primarily aimed at getting a readymade platform of 40 sales, trading and research professionals. Similarly, after having made around Rs2,000 crore by selling off its institutional broking business to its 17-year-old partner Morgan Stanley and losing its top investment banking professionals to the partner, the Nimesh Kampani-led JM Financials paid Rs58 crore for controlling stake in Ask Securities, a local instituitional broking house promoted by Asit Kotecha.

Another angle of the war of talent is the reverse brain drain. Traditionally, professionals have moved from local firms to the international ones as the latter offered a global platform, apart from a fat salary. But now the tide seems to be turning in favour of the local guys. The stage was set in May, when India Infoline Ltd, a retail broking outfit promoted by Nirmal Jain, hired four top executives from CLSA Asia-Pacific Markets, the largest foreign broking house in India. Bharat Parajia, head of sales for CLSA’s Singapore office, H. Nemkumar, country head, Vasudev Jagannath, head of sales and Aniruddha Dange, head of research at CLSA India, received a combined sign-on bonus of Rs44 crore and equity stake of around 15%. The day the announcement was made, India Infoline’s stock jumped 40%.

In August, JP Morgan India Pvt. Ltd lost four of it top executives to JM Financial Services Private Ltd, the local investment bank and a broking house led by Nimesh Kampani. The blow to JP Morgan came at a time it had hired 15 executives to beef up its local equities team.

Reverse flow of talent “is driven by the opportunities of wealth creation which comes in the form of equity stakes. Employee stock option plans (Esops) of the international firms do not offer such potential," points out Patel of Korn/Ferry International. Stock options of international firms are more like retention bonuses, whereas there is no cap on the amount of wealth that an equity stake can create. Edelweiss Securities Pvt Ltd, which is reportedly firming up plans to go public, is one of the few firms, which is known for giving stock options to its middle-level and junior-level employees. Motilal Oswal Financial Services has found stock options works in keeping its newly set-up 20-member investment-banking team intact.

But there is more to it than equity stakes. “The pull factor is the opportunity to create the business on their own. It’s like running your own profit & loss account while being a part of a large organization," says Saket Jain, partner at Vito India, a Mumbai-based firm that specializes in financial services recruitments. In international firms, compliance norms and the reporting structures require Indian heads to constantly report to Asia Pacific executives, interfering in independent functioning, he adds.

At the same time, the domestic players are looking at professionals as a stock investment and are willing to pay more, says Singh of EAL Consulting. Thus, two years back, if a vice-president level professional was getting Rs25-30 lakh, today he is making Rs40-50 lakh. So, while domestic players offer sign-on bonuses, international players counter with double bonuses. Not to be outdone, domestic firms are ready to offer equity. At the end of the day, it looks like a game of musical chairs.