Asset Managers Expected to Cut Executive Pay, Bonuses

Asset management firms are expected to cut executive compensation by as much as 5%-10%, one of the biggest declines among financial professionals this year, according to a recent report by the compensation consulting firm Johnson Associates. 

The dip in compensation comes as clients continue to forgo higher-fee products and exchange active equity funds for cheaper passive ones, the report found. 

Bonuses for hedge fund managers were also expected to drop to just 5% or even 0% in some cases. Likewise, bonuses for investment bankers dealing with mergers and acquisitions or equity offerings will shrink by 10%-20%, according to the report. 

The reasons behind the decreases are many. The recent regional bank failures of Silicon Valley Bank, First Republic and Signature Bank have greatly impacted the outlook for compensation between large and regional commercial banks and retail lenders.  

Small and midsize funds—whose fundraising typically dwarfs that of larger private equity funds—are expected to feel the strain, with an anticipated drop of 10%-20% as clients move their deposits.  

In terms of staff bonuses, major banks with substantial commercial banking operations will do better than pure-play investment banks, according to the report. At the same time, banks will likely employ other methods of reducing costs; namely, by cutting staff.  

While the Johnson Associates report suggests incentive compensation will remain an important part of compensation packages for financial services professionals, firms may need to adjust their bonus structures to match market conditions, while also addressing the changing needs of their employees. 

The report also highlighted the importance of carefully balancing incentive compensation with other factors that are critical to the success of financial services firms, including risk management, compliance and talent development.