What comes after a record performance? A “big, big bonus”

With financial services delivering strong returns across the board – despite continued disruption from Covid-19 – employees should expect significant year-end bonuses. According to executive recruiters and a third quarter report from Johnson Associates. a financial services compensation consulting firm, there will be significant year-end incentives across all financial services, including asset management.

Traditional and alternative asset management employees are expected to earn big gains this year. Although entries into traditional asset classes were modest, the market was booming. According to the analysis, the incentives for traditional asset management will increase by 12-18% from 2020; bonuses paid to hedge fund employees will increase by 10% to 15%; and those in medium and large private equity firms will see their bonuses increase by 12 to 18 percent from last year. Johnson Associates’ analysis estimated the incentives for fiscal 2021.

In investment banking, Johnson Associates expects underwriters to earn premiums 30-35% higher than the 2020 incentives. In investment banking, Johnson expects an increase from 20 to 25 % of bonuses compared to last year.

“Almost everything is in place, but investment banking is the hottest,” said Alan Johnson, chief executive of Johnson Associates. Institutional investor. “Asset management, private equity and hedge funds are doing very well, but their business models don’t have the kind of peaks – ups and downs – that investment banking does. Higher bonuses in banking this year, compared to all asset management sectors, reflect volatility.

Johnson attributed the pay rise to strong market performance across all areas of financial services. For example, the performance of hedge funds increased in the second quarter of 2021, with 82% of hedge funds posting a positive annual return,II Previously reported.

Endowments, such as those from the University of Washington, Harvard University, Bowdoin College, the University of Pennsylvania and the University of Chicago, posted record returns in fiscal 2021. Even pension funds performed well last year: during the troughs of the Covid-19 pandemic in 2020, the aggregate funded status of public pension funds reached 80% in March 2021, II also previously reported.

“Over the past year, the performance of endowments and foundations has been interstellar, out of the ordinary,” said executive recruiter Charles Skorina. II. “For this reason, the bonuses the investment teams receive are enormous. Part of their remuneration is based on the performance of the institution.

In a normal year, Skorina said, an investment manager for an endowment or foundation could earn, say, $ 1 million. But, this year, their total compensation could rise to over $ 1.5 million.

“The overall competition this year is amazing,” said Skorina. “It’s well outside the normal range.”

Johnson has also linked the trend of working from home to rising salaries for financial services workers. In short, institutions do not want employees to leave, so they pay them more. Organizations struggle to adapt to the hybrid and remote work environment, which in turn poses retention challenges for institutions. For example, the standardization of video calls makes interviews more accessible, creating a “good environment to leave,” Johnson said.

“All of my clients are concerned about retention,” he said. “While the bonuses are paid over the next few months [in December, January, and February], our customers are very worried that the turnover will increase further.

From Skorina’s perspective as an executive recruiter, base salaries for financial services employees have not changed significantly, but magnanimous bonuses have changed pay expectations for investment talent. In turn, while the current compensation environment is good for this talent, it poses challenges in recruiting for leadership positions.

“I’ve done some research where there’s a target range for what my clients want to pay,” Skorina said. “I had someone on Friday say to me ‘last year that’s what I was doing, and that compensation number that you mentioned, Charles, would have been appealing. But, this year, I will earn 30% more because of my big bonus. So I don’t think I will take this job. Thank you.'”

It varies across types of institutions, Skorina said. For example, family offices can be a little reluctant to give in to new talent compensation expectations. But to a large extent, it is easier and faster to concede to the demands of a potential employee than it would be, for example, in a foundation. For institutions like endowments and foundations, it’s not that simple.

“A family office is one thing. You can go to the rich founder and say “we’re going to have to set the table.” He takes ten seconds and says “OK,” or “disagree” or “let’s go lower,” Skorina said. “But in an endowment or a foundation, where there is bureaucracy and budgets, [a compensation increase] could take a year.

Skorina and Johnson expect pay to stay on the rise until 2022. As to when it all comes to an end, Johnson said it’s inevitable but depends on the fiscal and political environments of the following years.

“It’s going to die out,” Johnson said. “It depends when.”

Skorina agreed: “It will continue,” he said. “I doubt the Fed will disturb him until the next one [presidential] election.”

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