eFC Briefing: Base Bonus on Longer-Term Results

Fund management firm American Century adds a five-year lookback period to bonus formulas. Global banking group's report calls for tying pay to risks taken. Financial firms pull back IT outsourcing amid slower spending growth.

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American Century Investments will restructure its bonus system for portfolio managers by adding a five-year performance component and comparing their returns with a benchmark instead of a peer group, according to Fund Action newsletter. The move will reward the firm's best performers with stock options and tie incentives to long-term performance. Currently, American Century portfolio managers' cash bonuses are based on performance over one-year and three-year periods.

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The financial sector is pulling back on outsourcing projects and bringing many IT operations in-house, says Computer Economics, a research firm based in Irvine, Calif. The company says IT operations budgets for financial firms will grow 2.5 percent this year, compared with 4.3 percent in 2007. Financial-sector IT spending is growing at a slower pace than IT spending across all sectors, whose budgets are up about 4 percent in 2008 after climbing 5 percent last year. Another research firm, Boston-based Celent, recently reported brokerage firms are prioritizing technology spending, with areas such as risk management, compliance and portfolio valuation remaining high on their lists.

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The Institute of International Finance is recommending Wall Street securities firms make their pay practices more transparent and tie compensation more to market risk. Its 200-page report, issued last week, claims to establish "best practices" for banking industry compensation. A key recommendation calls for tying performance-based compensation incentives with both shareholder interests and "long-term, firm-wide profitability, taking into account overall risk and the cost of capital." The group also wants firms to ensure that compensation incentives do not induce risk-taking in excess of their risk appetite.

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Chicago-area recruiters say the market for investment consulting jobs there is strong, with the institutional market holding steady and jobs for consultants who can serve individual clients growing rapidly. Robert Half's Chicago division director reports "quite a few" current openings for investment consultants. Industry insiders see an increase in individual and high-net-worth planning. Institutional investment consultants are also hiring in Chicago, particularly for client-facing roles.

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In the wake of IndyMac's collapse, fears abound that Charlotte's big banks could be next. Plummeting stock prices at both Bank of America and Wachovia are causing concern about possible failures at these banking giants, and the certain layoffs that would follow. When releasing its quarterly results Tuesday, Wachovia said it will stop buying loans from mortgage brokers, which accounted for 40 percent of its home loan volume last year. Speculation continues that Wachovia could become a takeover target, resulting in a restructuring or consolidation of jobs in its headquarters, where 20,000 of the banks 122,000 employees are based.