From the category archives:

Compensation

2017-hf-comp-rpt-fig-22For starters, around three-quarters of hedge fund professionals will not receive their bonuses until the first quarter of 2017, according to the  Hedge Fund Compensation Report, so, if there was nothing under the tree, no worries, it is coming.

What Will Bonuses Look Like This Year?

Although the financial media has painted a bleak picture of the hedge fund industry, citing underperformance, negative flows and closes that exceed starts, the majority of hedge fund professionals are expecting bonuses this year.

While the average percentage increase in bonus pay is up a paltry 1.5 percent over last year’s bonus payouts, average base pay shows a year-over-year increase of almost 3 percent. To take the mystery out of the equation, expected mean bonuses range from $52,000 to $293,000 and mean base pay ranges from $120,000 to $245,000. With bonuses of that size, most folks likely enjoyed a substantial chunk of holiday cheer.

Bonus Pay vs. Firm Performance

Anyone that has kept pace with hedge fund compensation understands there has been a disconnect evolving over the past four years with regard to performance and bonus. From 2013 forward, the chasm between bonus payouts and firm performance widened. In some cases, bonus payouts to hedge fund professionals working in firms with negative gains were receiving higher bonus payouts than were their peers in firms with above average gains. The reasons for this disconnect are many and too complex to address here. We did see, however, that bonus pay and performance are more closely aligned this year than they have been in the last three.

Bonus Pay vs. Base Pay

Another fact gleaned from this year’s 2017 Hedge Fund Compensation Report is the fact that hedge fund professionals in the lowest paying positions also received the smallest percentage of their total compensation in the form of bonus pay—about 11 percent on average. Conversely, those at the top of the earnings scale received more than 80 percent of their total compensation as bonus pay.

Guaranteed Bonuses

The hedge fund profession is a “put up or shut up” industry. This is reflected by the fact that only one in five hedge fund professionals are guaranteed a bonus. This is consistent with the pay for performance model that has been long touted in the industry, although not always practiced.

What about Jobs?

Take your cue from the optimistic outlook the majority of hedge fund professionals expressed in this report. Hedge funds have struggled in the past four years to be sure. Undoubtedly, there are still challenges ahead but the trends and the facts favor the industry. For example, while it is true that net outflows were negative this year, it is also true that hedge funds, in the aggregate, have $3 trillion plus in assets under management and although closings outpaced starts for the first time in years, it was not by alarming margins. Lastly, the compensation for hedge fund professionals remains the envy of the majority of those working in the financial sector.

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Everyone that breaks into the hedge fund industry asks themselves that question. The education, the experience, the network of contacts, the untold hours spent writing and re-writing resumes/CVs and cover letters, interviews – it ultimately ends with the negotiation of a compensation package. Prior to the finalization of this key hiring element all one has are possibilities. If the negotiation goes poorly, you may well be hitting the bricks once more. Yes, it is that important!

What Can Possibly Go Wrong?

A number of things have the potential to derail a prospective employee engaged in negotiating a compensation package. The first one must recognize is that a compensation package encompasses more than an annual wage, particularly in the hedge fund industry.

Compensation includes salary, of course, but also bonus structure, guaranteed bonus and upside sharing, not to mention the vanilla details surrounding vacation pay and benefits.

How deeply the negotiations delve into these multiple factors will depend on the position the applicant has been selected for and the applicant’s experience level. For the uninitiated, negotiating a compensation package can be as great a challenge as landing the opportunity that placed him at this crossroads in the first place.

A Few Tips

1) This may be your first rodeo, but that is not the case for your prospective employer. The employer will almost never begin the negotiation with his best offer. Job candidates who negotiate in a constructive and well thought through manner will fare better than candidates who do not negotiate. Negotiating is an opportunity for the employer to evaluate your strengths and your weaknesses. In effect, negotiation represents an opportunity for the candidate to demonstrate the skills the employer is seeking. Management needs to see that you value yourself. Bear in mind that your demeanor during these negotiations offers the employer insights into how you will handle coworkers and customers.

2) Before negotiating, learn what you can about the salary range and perks within the industry for your chosen position. Research the firm thoroughly. Then consider how your expectations, in terms of salary and benefits, coincide with what you have learned.

3) Keep in mind that the employer has already decided you are right for the position. The main concern of the employer at this stage is to make it happen.

4) Usually, it is not prudent to accept the first offer the employer makes, even if it exceeds your expectations. The employer does not (should not) know your expectations. Your research should reveal if the offer is reasonable and where it falls in the range for the position you seek. If it falls at the low end, negotiate accordingly.

5) When a compensation package is offered, ask that it be put in writing and request time to think it over. Employers will understand.

Final Thoughts

Your best ally in compensation negotiating is confidence. Confidence is achieved through knowledge. In the tight-lipped hedge fund industry, the Hedge Fund Compensation Report is an invaluable source for the information you need to realize the best possible outcome.

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Equity Shares Shown to Have Declined in 2015

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Equity sharing is an important variable to consider in determining the level of total compensation an individual will receive from his hedge fund firm. While equity or upside sharing is not a topic typically perceived as applicable to those just beginning a career in the hedge fund field, it ultimately becomes incredibly important to the […]

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What You Need to Know About Hedge Fund Bonuses

February 8, 2016

Bonus pay is a critical segment of one’s total compensation in the financial sector in general and hedge funds in particular. It is not uncommon for those in the highest pay bands to earn bonus pay that is many multiples of their base salary. Predictably, the percentage of one’s total compensation represented by bonus pay […]

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What Sized Hedge Fund Promises the Best in Compensation?

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Most people gravitate to a career in the hedge fund industry for the earning potential. After all, flexible working hours, a low stress work environment and job security are not perks generally associated with the hedge fund industry. Investors have debated the pros and cons of small, medium and large hedge funds for years. Some […]

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