PWC research: Asset management compensation rises

Compensation in asset management firms has risen as fund performance shows signs of improvement, according to research from PricewaterhouseCoopers (PWC).

PwC’s annual asset management report found compensation costs as a percentage of net revenues have increased by over 4% over the last financial year.

Annual bonus spend as a percentage of pre-bonus operating profit has risen substantially, with increases of 9% for a typical firm and up to 20% in others.

The report also found compensation costs are being driven by pressure to increase base salaries, which reflects changes in the banking sector where bonuses have been scaled back.

However, 40% of asset management firms increased bonus pools last year, while only a third reduced their bonus spend.

More than 50% of firms changed their deferred bonus policy from 2009 to 2010, of which the most frequently cited changes were the introduction of bonus referral: increasing the group of employees to whom referral applies, and increasing the amount of bonus deferred.

Where deferral arrangements exist, there has been a shift away from deferred cash to deferral into shares and funds.

Tim Wright, remuneration director at PWC, said: “Despite many firms spending more than the previous year on bonuses, base salaries are still being negotiated up. Ultimately, asset management and banking share much of the same talent pool and new hires expect base salaries to be aligned. This, in turn, is pushing existing employees to demand pay hikes as they notice market rates have increased.

“Pressure on base pay also suggests that while bonuses may have risen for many individuals, they are perhaps valued less now many individuals have experienced reductions in bonuses in the past few years following a period of regular increases.”

The research also found around half of respondents have made changes to the use of long-term incentives, with a significant shift towards basing them on multiple performance conditions rather than a single performance measure.

Of those firms using long-term incentives, 24% used a single performance measure in 2010 compared with 49% in 2009. 

The use of multiple measures has increased from 4% in 2009 to 28% in 2010.

Wright added: “Multiple measures have the advantage of incentivising achievement across a number of performance areas, while smoothing the levels of payout by reducing the probability of the award either not paying out at all or paying out in full.”

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