Asset Management Compensation Takes a Hit — And Headcount Could Be Next
Incentive pay at traditional asset management firms has declined noticeably since last year, according to Johnson Associates.
Bonus pay for asset managers is trending downward — and it may be followed by job cuts by the end of 2022.
At traditional asset management firms, employee incentives declined 17.5 percentage points from 2021 to the end of fiscal year 2022, according to a Johnson Associates report expected to be released Thursday. Incentives are a massive part of the allure of asset management firms, making up any compensation — primarily bonuses — that isn’t a part of the employee’s initial base salary.
Chris Connors, vice president at Johnson Associates, said the decline in incentives was driven by the drop in overall market performance. In June, the S&P 500 saw its worst performance in over 50 years. Specific asset classes, such as active equities, also saw striking outflows. “Revenues are down, profits are down, incentives are going to be down,” Connors told Institutional Investor. Johnson Associates analysts estimated a 13 percent decline in aggregate earnings per share for fiscal year 2022.
Alternative asset managers aren’t immune to the market downturn and inflation. While incentives at hedge funds remained flat from 2021 to 2022, incentives at private equity firms decreased by 5 percentage points year-over-year. Connors attributed this decline to slowdowns in fundraising, deal-making, and realizations.
Amid the underperformance, Johnson Associates also expects job cuts at both traditional and alternative asset management firms by the end of 2022. In fact, Connors said some firms have already begun to quietly reduce headcount.
These cuts are primarily the result of a cooling labor market. In 2021, asset managers — and the financial services industry in general — hired en masse, dished out competitive base salaries, and topped it all off with generous bonuses in an attempt to compete in the “war for talent.” Connors said that by the end of 2022, staff at traditional asset managers should expect less voluntary turnover and a bit more involuntary turnover — in other words, layoffs.
Meanwhile, Johnson Associates expects base salaries to remain steady due to inflation. In 2022, base salaries increased 5 percent for a second consecutive year, giving firms some breathing room in their efforts to retain employees. “With incentives down or projected to decrease pretty significantly, it’s a way for firms to try to retain their talent and recognize that inflation is out there and impacting compensation in a real way,” Connors said.