Are you spending too much critical year-end time calculating and coordinating employee compensation?
You are not alone. Compensation in the asset management industry is incredibly complex and involves more than just tracking salaries and bonuses. All players in the financial services industry, including Alternative Asset Managers, Broker Dealers and Global Banks, face compensation management challenges. The compensation process is usually consolidated into the hands of a select group of C-suite executives and senior managers, which leads to time-consuming bottlenecks across the business. A robust system to manage the calculations and approval workflows is of critical importance to all firms with challenging compensation models. Compensation systems need to be flexible, secure and highly automated.
Below are some of the common concerns that we’ve heard from our clients:
- Payout structures can change quite frequently and vary from Trader to Trader.
- Compensation is often awarded as a percentage of fund management fees subject to allocation.
- Clawback provisions in fund documents and limited partnership agreements create variable payout scenarios when compensation is subject to be returned to investors.
- Circumstances that affect the Bonus Pool can occur at the last-minute and firms need the ability to perform quick analysis on projected/actual compensation numbers.
- Reporting structures are constantly evolving, particularly when organizational change occurs.
- Deferred compensation programs are subject to regulatory concerns and are difficult to maintain.
- Version control is challenging; living documents such as Excel spreadsheets are frequently altered but not properly tracked.
Other Key Considerations
Limitations of Excel and Human Capital Management Systems
As each firm faces a unique set of issues, their compensation requirements can vary quite drastically. These nuances dictate the approval workflows and calculation logic that need to be implemented in a compensation system. The unique and complex nature of compensation in the financial services industry requires more than what traditional Human Capital Management platforms or Excel spreadsheets can offer. These methods of managing compensation do little to address key issues related to data integrity, security and key man risk. A compensation solution should not rely on Excel for tracking compensation because it involves frequent manual processing and is prone to user error. In addition, the manual and tedious aspects of managing compensation in Excel often falls to the responsibility of a small subset of executives. This becomes a key man risk, as critical information can be lost when there are personnel changes.
Hosting Data Externally or In-house
Compensation data is among the most sensitive data a company maintains. Evaluating how to manage and host the solution is of critical importance. Firms often find that having a third-party firm host and maintain the administration of their compensation systems is the ideal solution. When the system is hosted and administered in-house, members of the technology team may inadvertently be able to access sensitive data, including the compensation of their peers. Utilizing a third party host to maintain compensation data can provide an additional layer of security and confidentiality.
How does your organization’s compensation system compare with industry best practices?
The FinServ Compensation Team understands each client’s unique compensation requirements and works with them to develop a solution that addresses their key issues. FinServ Consulting has worked with numerous top Alternative Asset Managers and Global Banks to implement systems to manage compensation. Our team has the expertise and perspective to help reduce the compensation process complexity in your organization.
FinServ Consultants are experts in the hedge fund industry and already understand the complex concepts that drive portfolio managers’ compensation. FinServ’s team of compensation experts works with financial services firms to understand their current compensation process, assess the strengths and weaknesses of current processes, and conduct a vendor selection or custom implementation based on the specific requirements and challenges.
To learn more about FinServ Consulting’s Compensation Practice, please contact us at firstname.lastname@example.org or (646) 603-3799.
About FinServ Consulting
FinServ Consulting is an independent experienced provider of business consulting, systems development and integration services to alternative asset managers, global banks and their service providers. Founded in 2005, FinServ delivers customized world-class business and IT consulting services for the front, middle and back office, providing managers with optimal and first-class operating environments to support all investment styles and future asset growth. The FinServ team brings a wealth of experience from working with the largest and most complex asset management firms and global banks in the world.