Asset management professionals are likely to see incentive pay for 2019 remain flat or drop slightly, even after a much stronger year for financial markets, recruitment and compensation sources say.
As such, employees may need to temper their pay expectations, as money managers look for other ways to incentivize and retain staff, such as providing career-enhancing job opportunities.
Managers are currently "loath to add in fixed costs, and I don't see that changing," said Alan Johnson, managing director of Johnson Associates Inc., New York. And given industry headwinds such as fee pressures, he doesn't believe managers would try to make up for a dearth of big bonuses by increasing salaries or other entitlements for staff.
"As the industry continues (in this direction), it will make some people uncomfortable because pay isn't as predictable as it once was," he said.
Since 2015, year-end incentives for asset management professionals in traditional equities and fixed income have wavered, drifting down in 2016, then increasing in 2017 and 2018. Johnson Associates predicts year-end bonuses for 2019 will be flat to down 5%.
In comparison, 2019 bonuses for private equity and hedge fund professionals are expected to be flat to up 5% over last year, Johnson Associates predicts.
Katie Vande Water, a partner in executive search and advisory firm Wilton & Bain's corporate practice focused on asset management, also expects bonus pay to be flat to down for asset management professionals in both sales and investment roles.
"It was a great year in the markets, but does that translate to revenues to the firm?" Ms. Vande Water said, noting that improved markets don't necessarily push pay in the same direction. Firms' revenues have taken a hit as a result of lowered fees, she added.
In 2019, the S&P 500 soared 31.5%, while the Bloomberg Barclays U.S. Aggregate Bond index delivered 8.7%. In 2018, the S&P 500 was down 4.4% in 2018 while the Bloomberg index was up 0.01%.
Ms. Vande Water has additionally seen larger firms moving away from giving investment professionals a share of revenues from products they manage in favor of a base salary and bonus package. For institutional sales professionals at larger firms, many also have moved away from incentive plans with commissions to a base and bonus structure, she added.
But for investment professionals at smaller firms, revenue-sharing is often still used "because they are needed to attract people who are in build mode," she said.
A combination of factors, including pay, are resulting in more professionals being open to new opportunities from competitors, Ms. Vande Water said. Factors include the fact that pay has not increased for some professionals, the change in compensation structure for sales and investment staff, and a shift in mindset among talent.
"Part of it is cultural. People really want to work in a place where they feel valued and it's a nice place to work. I also think there's a lot of folks at a larger firm that think it could be fun to work in a more entrepreneurial environment" whether that be a startup or smaller firm, she said.
"I think people are willing to make moves. And frankly, firms are still quietly cutting (jobs). It's not big-headline layoffs, but they are cutting."
The heightened potential for talent to be lured away is a slight change from past years particularly for investment professionals, who typically would be less likely to move due to the impact it can have on clients or the firm's business, Ms. Vande Water added.