Global fund managers are likely to witness up to 35 per cent cut in bonuses this year even as the asset and wealth management industry is upbeat about a recovery in financial markets worldwide.
According to global executive search and assessment firm Russell Reynolds Associates, this year would be tougher than ever before for chief executives and boards at asset and wealth management firms, to communicate the right performance and reward message.
“Profitability and thus bonus levels will be driven by three factors: rebound in investment performance, retention of assets under management and how quickly and deeply firms trimmed costs when the downturn hit,” Russell Reynolds Associates’ Asset and Wealth Management Practice MD Cornelia L Kiley said.
“Even though accruals are now moving in the right direction, unless firms were able to align all three factors, bonus pools are likely down 20 to 35 per cent from last year,” Kiley added.
The report is a qualitative review of compensation trends within both traditional asset and wealth management firms and those focusing on hedge funds, real estate and private equity in the Americas, Europe and Asia/Pacific.
The report stated that CEOs may use the upheaval of the last year as an opportunity to fundamentally re-examine the compensation structure for their leadership teams and senior investment professionals.
“In many ways, the events of 2009 have shown that the traditional compensation model is unsustainable. A greater percentage of compensation will be deferred, the duration extended, and there will be a greater alignment of incentives with long-term profitability, rather than with short-term performance,” the report added.
Moreover, retention would be a critical issue as management teams struggle to stretch limited bonus pools.
For most firms, there would be broad differentiation across performance bands and many firms may skew bonus payments to retain top performers.
The report also revealed that there exists a sharp dichotomy in compensation expectations between buy—side and sell-side firms.
While several of the large banks and securities firms are now enjoying a massive improvement in earnings, many asset managers still struggle and are expecting another down year.
