Large money management firms have increased salaries as a retention tool for key investment professionals because bonuses during the past two years were low, reports executive recruiter Heidrick & Struggles.
The question now is: What size bonus should these key staffers expect this year? The answer, according to the report, is “unknown.”
Compensation levels peaked in 2007. “As bad as '08 was, the hope is that '09 will be better. The reality is no one is going to know for a couple of months,” Jane Hobson Marcus, partner in the global asset and wealth management division of Heidrick & Struggles, New York, said in an interview.
One thing seems certain: “The reality will be less than what the expectations are today,” she said.
The report was based on conversations with investment and sales and marketing executives, as well as interviews with corporate executives and human resources officials at money management firms. In addition to covering investment management professionals, the report also focused on distribution and “infrastructure” executives, those in finance, risk, compliance, operations, technology and auditing.
In the past, Ms. Marcus said, recruiters would take a backward look at compensation and extrapolate to the future. “Now we can't do that.”
Still, the report said investment management compensation seems stronger than expected in 2009, especially in fixed income. The reason: Many products are enjoying double-digit returns year to date.
Ms. Marcus said she was surprised during the conversations leading up to the report by “how much noise there is in the market on comp, more so than normal.”
She said money management leaders such as chief investment officers wonder whether their talent base is going to be raided. “Not ever in the 20 years I've been recruiting do I remember a time when there's so much concern over the stickiness of the talent base. We're almost all getting tangled up in what the other guy is doing.
“I'm concerned that people will overreact,” Ms. Marcus said.
She also noted a change in how compensation is being structured for investment professionals such as portfolio managers. “Senior-level portfolio talent is going to be measured not only on asset growth, but also on the bottom line,” Ms. Marcus said. She noted that in the past, the problem was that asset growth didn't necessarily correlate to the bottom line.
At the same time, Ms. Marcus said, investment management leaders are asking: “How do we differentiate ourselves from our competition?” They want to separate themselves from the pack not just for clients, but also for their employees.
One way to do that is to focus on culture and trust, she said. “Culture and trust are on the minds of leaders,” she said.
“We haven't before seen the softer side.”