Why Scottish fund managers should expect bigger pay packets this year

Scottish fund managers are feeling the pressure to hike up base salaries to compete with City-based firms and fall in line with onerous new regulation around remuneration in the financial sector.

It's been a good year to work in fund management, with total compensation costs increasing by 4%, according to a new survey by PwC. Bonuses have been pushed up, but base salaries are still increasing as employees realise market rates have risen, it suggests.

Much of this is down to the investment banking sector, which has increased salaries to compensate for regulatory-induced restrictions on bonuses.

"Ultimately, asset management and banking share much of the same talent pool and new hires expect base salaries to be aligned," said Tim Wright, remuneration director at PwC.

As Scotland isn't home to any investment banks with asset management arms, and as much of the recruitment comes from within the local market, you could surmise that there isn't the same pressure to increase pay north of the border.

However, this is not the case and pay has also been heading upwards in the Scottish market.

"Increasingly, for senior hires we're looking much further afield than Scotland, and if we want to attract these people we have to pay market rates," says one HR manager at a Scottish fund manager. "Even if we're recruiting locally, often these people need to be enticed from their current roles so you have to pay the dollars to make it happen."

Moreover, as we've alluded to previously, many asset managers in Scotland are planning on expanding again this year. And, after two years where salaries have largely remained static, there's a need to increase pay to avoid losing talent, suggests PwC.

"We benchmark our salaries against international levels, particularly as there's an increasing need to recruit from down south," adds another head of HR at a large Scottish fund manager. "Overall compensation this year has increased after a better year in 2010. However, while salaries are rising this is balancing out against reduced variable compensation."

Now, more than 50% of the 22 firms surveyed by PwC have introduced deferral arrangements to their bonuses, and the number of firms using multiple performance measures has increased from 4% to 28% over the last year.

This falls in line with our own research, which suggests that asset managers have been using 'softer' criteria for assessing bonuses, such as leadership qualities and knowledge transferral for senior staff.