Asset management firms are taking a hard look at how they compensate their portfolio managers, and a number of large firms have shifted to new pay structures.
Firms such as Janus Capital Group Inc., Morgan Stanley Investment Management, Citigroup Asset Management and Robeco Investment Management have recently altered their compensation plans to give portfolio managers a greater stake in their firms' overall businesses.
The changes, which mostly affect bonus and incentive payments, vary slightly from firm to firm. But the goal appears to be consistent — to clearly reward portfolio managers more for solid long-term performance and align the interests of portfolio managers with those of the firm's clients and shareholders.
"It's a very appropriate shift in industry practice, and it's a good thing that firms are paying out their portfolio managers more objectively based on defined metrics," said Alan Johnson, managing director of New York-based compensation consultant Johnson Associates Inc.
Historically, he said, many large asset management firms have linked a portion of portfolio managers' pay to broader corporate numbers, such as a company's bottom line or assets under management. "That completely ignores the reality of the business," he said, adding bonuses can often be paid out from companywide bonus pools. "There can be timing differences between investment results and a company's overall financial health — but no matter what your bottom line is, you have to pay your investment people when they put up great numbers."
Most of the firms that have fine-tuned their compensation measures for portfolio managers have emphasized long-term performance as a driver of bonuses and incentives.