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Asset Owners Weigh in on Compensation

Few of the world’s largest pensions and sovereign wealth funds can offer pay comparable to asset managers.

  • Staff

Even some of the most powerful asset owners are unable to compete when it comes to compensation.

Among a group of 15 leading asset owners surveyed by Australia’s Future Fund and advisory firm Willis Towers Watson, few said they had been able to successfully campaign for pay in line with the compensation arrangements at asset managers – and those who did were “clearly the exception.”

Many funds are “unable to compete on purely financial terms with other career opportunities,” the firms said in a report released Monday.

Although left unnamed, the study participants were described as large, influential pension managers and sovereign wealth funds with sizeable staffs and strong governance practices. Six were based in North America, while five were from the Asia Pacific sector. The rest were in Europe, the Middle East, and Africa.

All but two said individual pay at their organization was constrained apart from their overall budget cap. Three reported compensation was linked to public sector norms, while ten said remuneration was tied to an industry scale.

Despite being at a monetary disadvantage compared to for-profit asset management firms, the asset owners surveyed said they made up for comparatively lower pay through measures like location and work-life balance, as well as the variety and challenge of the work itself. Some of the solutions employed by these funds included offering tactical secondments, role-swapping, and cross-team work.

The study also found that asset owners are “increasingly utilizing their compensation programs to assist with communicating to employees what is important, with an increased focus on individual behaviors.”

Pay for both financial and non-financial performance figured largely in some of the participants’ compensation packages. Five funds said financial performance pay was more than 200 percent of an employee’s base salary, while four said the same of non-financial performance compensation. Overall, more emphasis was placed on total fund performance, rather than sectoral.

Beyond compensation, the Future Fund and Willis Towers Watson study covered a range of best practices for achieving investment goals – a challenge the surveyed asset owners viewed as greater than ever. Over the next five years, only 12 percent said funds were likely to meet the “typical” return target of inflation plus 4 percent.

Roughly a third said there was a 50 — 50 chance, while 56 percent said it was unlikely.