Asset management compensation — including both base salaries and bonuses — rose over the past year, primarily to meet the demands created by fluctuating market performance, the great resignation, and the war for talent. Whether that can continue in 2022 remains an open question.
On Wednesday, BlackRock reported its first-quarter 2022 earnings. In the report, the $10 trillion asset manager revealed that employee compensation and benefits expenses had increased $89 million over the first quarter of 2021. According to the firm, the increase reflected higher base compensation. The manager noted that the number was partially offset by lower incentive compensation — that is, bonuses and benefits — which was partially driven by the lower mark-to-market impact of “certain deferred compensation programs,” the report said.
On Thursday, State Street also held its first-quarter earnings call. The firm’s report showed that total compensation and employee benefits declined 1 percent year-over-year, from $1.24 million in the first quarter of 2021 to $1.23 million in the first quarter of 2022. The report said the decline was driven by lower head-count in high-cost locations, likely as a result of more employees working from home.
Brian Dresch, associate client partner at Korn Ferry’s executive pay and governance practice, told Institutional Investor that firms adjusted compensation last year in response to the great resignation, which placed a higher premium on strong talent and created a competitive environment — “hyper-competition” as he described it — for talent acquisition and retention. Most of that pressure, Dresch said, resulted in slightly increased fixed salaries, although he added that some of the year-over-year growth in compensation expenses could also be attributed to increased head counts.
According to David Barrett, founder of executive search firm David Barrett Partners, increased compensation and benefits are to be expected at alternative and long-only managers. “Despite choppy markets, asset managers are still actively hiring and expanding teams, especially in distribution and product areas, so increased comp and ‘bens’ should be expected,” Barrett told II in an e-mail.
In a Johnson Associates report from March, the compensation consulting firm found that despite some outliers, asset management industry incentives actually increased year-over-year by anywhere from 12 percent to 20 percent in 2021. The firm attributed the increase to last year’s surging markets, active strategies for fighting fee pressures and outflows, and an increased emphasis on alternatives and technology solutions. The report — which also noted that there was pressure to increase base salaries at the end of 2021 — cited the pandemic’s negative impact on employees as one reason for increased incentive compensation.
George Wilbanks, executive recruiter and founding partner of Wilbanks Partners, an executive search firm, said that most of his firm’s clients upped bonus accruals in the third and fourth quarters of 2021, and that those stronger accruals have continued in the first quarter of 2022. But both he and Barrett said it remains to be seen how poor public market performance, inflation expectations, and geopolitical uncertainties — like the Russia-Ukraine war and Covid-19-related lockdowns in China — will impact compensation in the coming quarters.
“None of this helps at the most senior c-suite end, where there is a real shortage of talent in the key growth areas, including most of our search work, and some hesitancy by executives to take risks like changing jobs in the face of unsettled global markets,” Wilbanks told II.
Most recruiters and asset managers seemed to agree, however, that 2021 was unique when it came to compensation. “2021 is going to be a tough year to replicate in 2022,” said Dresch.