NEW YORK -- Job-changing domestic equity portfolio managers have been copying star athletes, commanding signing bonuses, seven-figure total cash compensation packages, multiyear contracts, equity options and, in some cases, a percentage of the revenues of the funds they manage.
These are among the findings of Russell Reynolds Associates' report on 1999 recruiting trends.
According to the report, demand continues for top-performing portfolio managers with recognized names and track records, but recruiting them is increasingly difficult because they have little incentive to make career moves.
"They are rarely motivated by broader responsibility (e.g., leading a group) or higher cash compensation because their employers generally are wise enough to keep their compensation close to market levels," the report said.
"Nevertheless, many successful portfolio managers remain interested in joining a hedge fund or other smaller investment setting where the longer-term financial upside is significant."
According to Rick Lannaman, managing director, the subject of equity in the money management firm has become a complicating issue in recruiting. Not only are the money management professionals demanding equity, but also many of those being recruited may be sitting with several million dollars of unvested equity in their current firms.
"This makes them vastly expensive to recruit," Mr. Lannaman said. "Some firms recruiting such executives are writing checks for the value of the equity. Others are replacing the equity foregone with equity in the new firms. It has distorted some of the employment situations."
"The good news," he said, "is that equity has helped companies retain good people."
Bonuses also complicate the picture. For example, he said, if a prospective employer tries to hire in October an employee with a $1.5 million bonus vesting in February, should he pay the employee $1.5 million in October, or wait to hire in February and risk losing the candidate?
At the same time, non-compete, non-solicit and non-recruit clauses in employment contracts are being taken more seriously by prospective employers and are being drawn more tightly, Mr. Lannaman said.
He noted recruitment was being made more difficult by the prosperity of the industry because good people feel they don't have to jump at the first opportunity, if it means relocating the family. "It's very difficult to get people to relocate," he said.
The report said the increased demand for value portfolio managers in late 1998 and early 1999 was short lived. Instead, growth equity portfolio managers have been in great demand, especially those who follow a "growth-at-a-reasonable-price" strategy.
In addition, there is an increased interest in portfolio managers who blend a quantitative discipline with a fundamental approach. While large-cap growth managers have been in greatest demand, some firms are adding managers with midcap track records, the report said.
Portfolio managers with international and global experience continue to earn a premium over counterparts who lack such experience. "Global portfolio managers with strong track records can virtually `write their own tickets,' " the report said.
A new qualification is "creeping in" at the chief executive officer level: experience in, or at least an understanding of, e-commerce. "If the candidate does not possess this qualification, e-commerce expertise must reside in another senior executive within the organization," the report said.
"There is a serious shortage of executive talent that possesses both Internet and financial services experience. Investment firms may have to look outside the industry for top talent," the report said.
CEO compensation packages continue to include significant options opportunities and/or a percentage of revenues. But more firms are adding multiyear vesting to the payment of cash and/or stock bonuses.
Other key findings are:
* The number of recruiting assignments for the private equity area doubled, compared with the same period in 1998.
* Because marketing executives are in short supply in the real estate area, people with as little as five years' experience can command salaries between $500,000 and $700,000 a year.
* The demand for sector expertise in technology is unabated as clients seek research talent to cover all technology areas, from Internet startups to large, established technology players. Demand for health-care analysts is close behind.
* Analysts consider principal investing a desirable career move. Venture funds investing in pre-IPO companies, particularly those investing in new and emerging technologies, are as attractive as hedge funds.
* Within the defined contribution market there are few searches for senior executives and compensation is flat.
* In the defined benefit arena, individuals who have strong relationships with consultants are in high demand. Marketing professionals prefer firms with multiple products, and firms that are open to allowing the individuals to live in their current locations are more likely to be successful in a recruiting effort.