Among the recruiters with whom this news service has spoken to recently about trends in the wealth sector, one of them gave us a useful explanation of how bonuses, pay and other aspects of compensation operate in the UK market – with relevance for other markets as well.

In this article, we talked to headhunters about how they see trends in the sector around the world. One of the executive search figures quoted is London-based Billy Stephenson. In the following short item, he provides a useful rundown of how remuneration and bonuses work in the sector. The editors welcome responses, critical or otherwise, particularly from those in executive search, HR and related roles. To do so, email the editor at tom.burroughes@wealthbriefing.com

What to look for:

–  Deferred compensation: teams receive a portion of their compensation at a later date, for instance after a certain period of time or after the achievement of specific goals; 
– Revenue-based: investment teams earn a percentage of the returns generated by the investment portfolio; 
– Performance-based: wider teams earn a percentage of the returns generated by investments; 
– Team-based: teams receive compensation based on the performance of their entire team; and 
– Length-of-service-based: teams receive compensation increases based on the length of time they have worked for the firm.

Bonuses – how they are set?
When a bonus computation is done the decision needs to be made as to whether it is given in one go or in tranches over a number of years. This can be done based on a range of formulae:

– Bonus deferral: Employees may elect to defer a portion of their annual bonus to a future year. This can be done to take advantage of tax benefits or to align the employee's interests with the SFO’s long-term goals; 

– Long-term incentive plans (LTIPs): These plans provide employees with cash or equity awards based on the achievement of specific performance targets over a multi-year period; 

– Deferred cash bonuses: Employees can defer a portion of their annual cash bonus to a future year, usually with an additional interest component; 

– Profit sharing plans: Employees receive a portion of the SFO’s profits, typically annually. The distribution may be deferred to a later date or tied to specific performance targets; 

– Performance-based vesting: Equity awards may vest based on the achievement of specific performance targets, such as return on equity.

Almost all of the above options combine an element of computational and discretionary; for example: 20 per cent of the excess performance and 30 per cent can be divided among the team and 50 per cent is at the CEO’s discretion.

In terms of what per cent of base is typical, it varies from role to role.