Asset managers ramp up bonuses to avoid staff defections

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After a year when the asset management industry quashed regulatory interference over pay, increased headcount, and rode the wave of an equity-market surge, firms are set to increase bonuses by 10-15% this year.

“Unlike the banks, there’s a lot of caution around increasing fixed costs among asset managers, so most are increasing bonuses by an average of 10% in line with improved performance in 2013,” says Richard Parkhouse, director of asset management remuneration at PwC. “The job market is much more attractive for asset management professionals, and firms are working harder to keep top performers happy.”

PwC’s research on the U.K. asset management market is in line with expectations in the U.S. by Greenwich Associates and Johnson Associates, which anticipates a 10-15% uptick in compensation this year, while sell-side firms are likely to increase pay by 5-10% on 2012. Those working in equities roles should expect an average of $660k this year, compared to $460k for fixed income professionals, it says.

Asset managers have continued to bolster their ranks this year, with both bank-owned firms like JPMorgan, which has hired nearly 1,900 staff for its asset management arm, and independent companies adding headcount. At the same time, ‘star’ fund managers have been more receptive to offers – notably Neil Woodford, who departed Invesco after 25 years to start his own firm, and Richard Buxton who quit Schroders for Old Mutual in March.

It’s this “paranoia” of losing employees that is fuelling pay increases, says one asset management headhunter who is “exasperated” by asset managers’ efforts to lock in staff with promises of higher bonus payments and counteroffers. “Good people are harder than ever to prise away,” he says.

This is reflected in the pay packets being offered to senior staff this year. The number of ‘high earners’ in the UK’s asset management industry is just 198, according to research by the European Banking Authority, but they took home an average of €2.12m (£1.76m). This more than double last year, when the average was €1.2m. Senior investment bankers in the UK received an average of €1.93m, according to the EBA, but 2,188 employees earned over €1m.

Within asset management, just 53% of bonuses were deferred for high earners – the lowest proportion of any financial sector, says the EBA. Asset managers have also successfully avoided regulatory intervention over pay after the European Parliament threw out plans to cap bonuses at 100% of salary in July.

“Most firms have increased deferrals off their own backs to avoid further regulatory intervention, but we’ve also noticed an increase in asset managers requiring investment staff to defer their bonuses into their own funds to encourage loyalty,” says Parkhouse. “Three years ago, a tiny proportion of fund houses did this, now it’s more like 40%.”

Bank-owned asset managers will find it harder to keep their employees, believes Greenwich Associates: “The combination of regulatory pressures and balance sheet issues facing these organizations remains a drag on compensation and job satisfaction,” it said. Independent firms are the “more attractive option”.

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