Wall Street fund managers, whose pay packages have scaled unseen heights in recent years, will be in for a shock when bonuses for last year are paid out in the coming weeks.
"With the results of last year many fund managers are going to take it on the chin," said Mr Paul Gavejian, principal at Buck Consultants, which has done an annual survey of fund industry executive pay in each of the last 14 years. "They are not going to get the same bonuses they received last year," he said.
Money managers last year pocketed an average bonus of $243,000, according to Buck's 1999-2000 study published in October 2000. The study, which examined 35 mutual fund firms, showed overall average compensation for fund managers rose to $341,000, up 9.3 per cent in the 12 months ended March 2000, outpacing the average American's 3.7 per cent pay rise.
This year is going to be different.
Used to riding a bull market to index-beating returns without too much trouble, managers last year faced a 39 per cent collapse of the Nasdaq, a 6 per cent loss in the Dow Jones and a 10 per cent decline in the Standard & Poor's 500 index.
Fund companies by law don't have to disclose how much they pay portfolio managers, despite increasing clamor for more transparency on the issue. Only the compensation of very senior executives such as Mr Tom Bailey, chairman and chief executive of Janus Capital Corp., is disclosed in regulatory filings.
Mr Bailey earned $2,021,128 in salary, bonus and other compensation, according to the 1999 annual proxy of Kansas City Southern Industries, then the parent of Janus. Mr Bailey recently also earned about $600 million from the sale of half of his stake in Janus to Stilwell late last year.
A manager's performance-based chunk can be pegged to a fund's absolute returns, its asset growth, the performance of the fund's corporate parent and a fund's contribution to that bottom line, or more commonly, the portfolio's return relative to a benchmark.
For example, a fund manager whose benchmark was the S&P 500 would be considered successful as long as his loss was smaller than the index.
"If the market was 9 per cent lower last year but (a manager's fund) was minus 5 per cent, he's going to get a bonus," said Mr Brian Mattes, a spokesman for fund complex Vanguard.
Galling as this sort of situation may be for investors who saw their retirement nest egg shrink, they should probably count their blessings, said Ms Kim Raynor, an executive director with executive search firm Russell Reynolds Associates.
"Yes, the shareholder should be upset, but the managers have avoided the real stinkers and by definition they have done a good job for their investors," she adeed.
