Should wealth management firms defer bonuses?

As pressure mounts on banks to remunerate staff with deferred bonuses and a number of asset management firms adopt this model, wealth management businesses are divided on whether the model is applicable to their sector.

Most recently Gartmore took steps to ensure senior fund managers and executives have 33% of their bonuses deferred. In total, some 66% of Gartmore’s salary bill is paid out in bonuses.

A number of wealth management companies believe that by deferring bonuses they can align the longer-term interests of employees and prevent excessive risk-taking in the pursuit of short-term performance.

However, others argue that the principle is not relevant to the wealth management industry, which should be aiming primarily to preserve the wealth of its clients and achieve consistent and long-term returns.

Peter Thomson (above), chief executive of Taylor Young Investment Management, is considering adopting the model and supports deferring bonuses or offering staff a rolling bonus arrangement, comprising both short-term and longer-term incentives.

Thomson said: ‘As a principle I think it is a good idea and a model I have been looking at.

‘I suspect the pendulum is swinging with regards to who has the stronger arm or is in a slightly stronger position than before the storm to implement the change.

‘But it needs to be imposed gradually, particularly if you have a long-standing staff base. I am not convinced there are too many unintended consequences.’

He believes that both short-term and long-term incentives can co-exist and that skewing incentives more towards the short term can be damaging, concluding: ‘People moving towards the long term is no bad thing for the industry.’ He added: ‘It is good for the firm and good for the individual and as a long-term lock-in it has a lot of merit.’

Under pressure