Institutional Investors Undergo Pay Overhaul

August 19, 2003 ( - Compensation of institutional investment professionals is undergoing a shift from performance-based payouts to more discretionary systems.

Nearly eight out of 10 (79%) large institutional investment firms have made changes to their compensation plans in the last three years and with compensation comprising almost 70% of operating expenses, it is little wonder. Firms are now split down the middle, with half having moved toward performance/commission driven plans and half utilizing more discretionary systems, according to the 2003 Institutional Sales Compensation Study conducted by Korn/Ferry International and the Institutional Investor Institute.

The paycheck overhaul comes for many of the large firms that are forced to restructure compensations plans and downsize due to increasing pressure to decrease operating expenses as the majority of them are publicly traded. However, even with the change, institutional sales professionals are paid very similarly among large- and mid-size firms. The major difference includes the use of equity, now being utilized by nearly all (97%) large firms, mostly based on subjective measurement.

“Investment firms today are under tremendous pressure to become profitable or maintain profitability,” said Paige Steinbock, Client Partner in Korn/Ferry’s Global Financial Market group and author of the study. “Whether the stakeholders are public or private, our survey identifies the different factors affecting mid- to large-size investment houses and the various measures they are taking to reward and retain sales force talent.”

Mid Changes

While both large and mid-size firms generally emphasize the same responsibilities of sales professionals – presentation skills, new fee revenue generation potential and attendance at conferences – compensation changes have been much more pronounced at the larger firms.

Among mid-sized firms, three quarters have not made any changes to their compensation plans in the last three years. Of the 25% who have made changes, 99% are moving to more discretionary systems. “Most of the mid-size and large firms are in discussions to review compensation structure. The market requires all firms to exercise more discretion and flexibility over how their sales teams are paid. At the forefront is the need to retain and motivate talent when products are under-performing,” said Steinbock.

The 2003 Institutional Sales Compensation Study comprises 50 mid- to large size firms, and focuses on firms with assets under management above $20 billion. Chief financial officers, heads of institutional sales and marketing, human resources or a combination of the above supplied data.