Fund managers worried about losing top staff are increasing pay and deferring bonuses for portfolio managers.
Some of the bonus deferrals are in anticipation of increased regulation of pay at asset managers. The chairman of the Financial Services Authority in the UK, Lord Turner, said recently that portfolio managers’ bonuses should be “reconfigured”, so that they’re “conditional on their performance over a defined period” of up to three years, while the final guide on alternative fund manager pay from European Securities and Markets Association (ESMA), published on Monday, calls for pay in the sector to be more aligned with the long term interests of the fund.
But many firms are deferring bonuses in order to retain staff, said Tim Wright, partner and head of asset management compensation at PwC. Fund managers are deferring a bigger portion of bonuses over as many as three years, he said. Longer deferrals and increased pay – fund management bonuses have risen by 3% this year, according to PwC research – are more likely to lock people in.
“Investment staff remain in demand and some firms are feeling retention pressure, which is fuelling pay increases,” he said. Some managers are paying 70% of bonuses in cash with the remainder paid in deferred stock, while other managers are deferring 60% of bonuses. “It entirely depends on the culture of the firm,” Wright said.
This lack of consistency in deferral rates is making the recruitment process more complex, said Chris Manfield, founder of headhunters Eiger Advisers in London.
“Employers want to defer an increasing proportion of bonuses, but fund managers want to take as much as they can in cash, so it’s a long negotiation process,” he said. “Portfolio managers ask a new employer to buy out their deferrals in cash, but because there’s so much inconsistency, it becomes much more complex.”
This is not just at the larger firms, or in Europe. Kevin Kozlowski, an analyst at US-based Greenwich Associates which recently released research into fund management pay in the country, said that smaller, independent funds are “hardly immune to pressure to reform compensation practices.”
They are offering “higher base salaries, increased use of long-term/deferred compensation and greater transparency in the design of incentives and sales compensation plans”, said Greenwich Associate's research. Now, an equity portfolio manager should expect 56% of their total compensation as a bonus, down from 61% in 2009, it says.