- Already A Member? (Sign In)
There has been an interesting shift in how various roles at hedge funds are compensated and it certainly pays to be higher up the structure. When looking at an average hourly compensation rate, the most senior roles at hedge funds have seen significant increases, while other employees’ compensation has remained fairly stagnant, and in the case of back-office employees have even witnessed a pay rate drop. COOs, CFOs and Directors experienced impressive increases over previous years.
Portfolio managers, quant/programmers and risk managers reported more moderate increases in hourly rates over 2008. Legal and compliance officers and accountants saw their pay decrease on an hourly basis. This is perhaps explained by the increase in the talent pool in the current hedge fund job market.
While firms had to pay a premium to entice skilled back office staff away from financial institutions, these roles have been the first to be cut at the banks. Hedge funds therefore can now pay less to attract those staff. The large difference between salaries of top management and other hedge fund employees was commented on by respondents, some of which complained of the lack of proper alignment in compensation plans.
Bonuses are the key in analyzing hedge fund compensation, and, at the higher levels, more than double total cash compensation. In the USA, UK and comparable countries, the average base salary in 2008 was $140,000, with a bonus of $172,000. It is the senior roles that benefit most from bonuses. COOs on average receive the largest bonuses.
In 2008, the average bonus for a hedge fund COO was $383,000 taking average annual total compensation to $557,000. Directors received the second largest annual bonus of over $300,000, and CFOs, the third largest at over $250,000. As expected, total compensation is considerably lower among back-office employees that have been “off shored.” Hedge fund employees in India, for example, earn a fraction of those in North America and the UK.
Interestingly, some of the lowest base salaries go to quantative analysts and programmers but generous bonuses of approaching $200,000 in 2008 bumped up their total compensation. The ranges in salary in each role, however, vary largely from firm to firm.
Each hedge fund interprets roles within the firm differently. Roles can have differing responsibilities and can require different skills and experience from fund to fund. Smaller and start-up funds would be expected to have lower compensation packages along with lower bonuses. For example, Directors that responded to the survey reported total compensation packages for 2008 to range between $125,000 and $3.5 million –the highest compensated role. Analysts and Portfolio Managers also reported large variations in total compensation.
Analysts can earn as little as $36,000 on the low end, and as much as $1 million a year on the high end. Portfolio managers earn between $34,000 and $2.2 million. It is clear that benchmarking by title alone does not paint a clear picture of cash compensation. You must take into account responsibilities, fund size and performance in order to get a solid benchmark number. How can this be? Remember, a start up fund is also a start up business, which means, in the early months, founders do not have the luxury of high levels of compensation, if any at all.
Singing “The Back Office Blues”
Back-office employees are expecting little to no increase in 2009. While Directors and CFOs were among the top earners in 2008, those that responded to the survey report that they are expecting a double digit pay decrease in 2009. The average director salary expectation for 2009 is about $100,000 less than they took home in 2008. The average expected compensation for a CFO for 2009 is $410,000.
Those expecting the largest percentage increases are those involved in the investment process – portfolio managers, quant/programmers and traders. The average total cash compensation of a portfolio manager in 2008 was $390,000.
These same Portfolio Managers expect to see a big increase in 2009 in total compensation to nearly $600,000 as reward for their performance in a difficult market. Traders are expecting a 50% bump in their compensation to an average $340,000 this year. And quants and programmers are looking forward to a six figure pay increase. Are they right to expect such increases? Does their performance support such increases? The data does not provide a clear cut answer.
Back to the 2010 Hedge Fund Compensation Report
