Asset managers’ pay won’t keep pace with revenue growth

Although the overall compensation pool will grow alongside assets under management, margins will be squeezed meaning higher revenues will not necessarily translate to higher profits.

PwC predicts that higher standards of transparency and governance will be required of asset managers resulting in fund manager pay becoming more targeted and closely aligned with team performance and client outcomes.

There will be a greater focus on non-financial incentives to retain and motivate talent, as pressure on costs and rising standards of transparency will make traditional approaches to retention more challenging.

The star manager culture will also be diluted through a focus on the next line of defence: succession planning, with emphasis placed on team decisions and outcomes which will be reflected in compensation structures.

Senior management will, by 2020, see leadership, strategic management and succession planning form key parts of their KPIs. As the focus sharpens on risk, by 2020 a head of compliance or risk’s remuneration will be separated from company performance as sharing in profit driven bonus pools will be seen as a conflict of interest.

Tim Wright, partner in PwC’s reward team, said: “In an industry where the most valuable and costly asset is its people, with compensation representing 60 per cent of total costs, pay structures for asset managers will have to adapt to match the evolution of the industry and increased costs and pressure on fees. As asset management firms continue to grow and increasingly move in to areas traditionally dominated by banks, the pay of asset managers will inevitably and increasingly come under scrutiny from both regulators and stakeholders.

“Productivity will emerge as one of the most important metrics in asset management, and a focus for shareholders. One way of justifying and measuring this is return on investment for shareholders for every £ of employee compensation.

“We expect a move away from the star manager culture and towards team-based incentives which in turn should have a positive impact on the reputation of the industry and mitigate risks of high profile departures for individual firms.”