Asset managers feeling the pressure to hike up base salaries
Independent asset managers are feeling the pressure to increase base salaries in a bid to counter perceived competition from investment banks. However, this may not be such a wise move.
Investment banks' remuneration shake-up is no secret - with most drastically increasing base pay to counter restrictions and increased taxes around bonuses.
Within their asset management functions, basic salaries have increased by 30-50%, according to various headhunters. Independent fund houses, which have typically relied on a larger bonus component of total compensation, are beginning to believe they should make the same move to remain competitive.
Nina Gilbert, founding partner of asset management recruitment firm Fisher Barrie, says: "Investment banks' remuneration practices have been very visible, which means independent fund houses are increasingly considering raising base salaries in order to draw people with this background."
Across the industry, senior fund managers can typically expect a base salary of 110-150k with a bonus of 100%+, according to the 2010 Michael Page salary survey.
"There are suggestions that investment banks with asset management arms have increased base salaries substantially, and independent fund managers are feeling pressure to do the same," agrees Richard Parkhouse, chief executive of asset management remuneration specialist PRPi Consulting.
"We are advising against this, however; it's not good for the economics of the industry and the trend is also not widespread enough for most firms to have to implement it. That said, we are seeing some effect - most noticeably when US asset managers move to UK firms and see a significant salary differential," he says.
Bonus structure shake-up
It's also worth noting that raising base salaries runs counter to research undertaken by investment management think-tank CREATE late last year. The firm suggests that greater emphasis is going to be placed on bonuses, which will be more closely tied to individual performance.
Research by Financial News, meanwhile, suggests that asset managers are offering a greater percentage of compensation in company stock, which vests over a number of years. The award is no longer just based on individual performance, but how the company fares in the long-term, it suggests, which is also takes a leaf from investment banks' books when it comes to reforming pay.
Newton, Insight Investment, Bank of New York Mellon, Schroders, Standard Life Investments and AllianceBernstein are all believed to have shaken up their remuneration structures.
Increasing base salaries would be a bad idea, says Amin Rajin, chief executive of CREATE.
"It would be suicidal to raise fixed costs in this manner," he says. "With the kind of pressure their fees are under, the last thing fund managers should be doing is hiking base salaries."
