A lot of posts on this site about $ pay levels, but not much about actual incentive structures (i.e. I'm more interested in how one gets paid vs what one gets paid for the purpose of this post). Curious what people have experienced over time? What did you like, what did you not like? What do you think would work and/or incent the right type of analyst behavior? I can tell you at my old firm, there was very little direct tie to personal contribution to the portfolio, and it was over-weighted to the aggregate, which I found very demotivating. Ex: I covered a smaller sector and like 40% of my outcome was dependent on our tech/com services analyst by definition. Curious what others have experienced and what has worked for them, paper portfolios, recommended lists, buy/sell/hold rating performance, # of names in the book, number of ideas generated in a given year, etc. What do you guys think works the best? What is the worst?
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I believe the bonus is calculated chiefly on a discretionary basis in most LOs. An investment arm for an insurance company would pay 25-50%, a small shop would pay 50-100%, and a benchmark hugging large managers would pay 100+%, but it is rarely based on a formula that delicately takes your individual performance into account. I'd be happy to learn if there are shops that do things differently.
I can tell you that this has not been true in either of shops I have been at (insurance and traditional AM). Both have had a discretionary component, but the quantitative component has been larger in both instances.
Sample size of 2 though so I could just have had outlier experiences
Just curious, to the extent you can disclose, what did the quantitative component look like, roughly?
Without being too specific:
Structure A: 60% target, 120% max.
80% quantitative/20% discretionary. Quantitative = 50% more direct portfolio; 50% broader definition portfolio (more of a composite). 1Y/Rolling 3Y formula
Structure B: 125% target, 250% max
50/50 quant vs discretionary. Quant = combination of things at various weightings. 3Y rolling
Should add that the quant vs discretionary mix of structure B is inconsistent with my comment "quantitative component has been larger in both instances". There are some quantitative measures within the qualitative piece that are not straight up performance vs a bench like # of ideas in a given year etc. that help drive the qual. The weightings of such measures are just not explicitly defined and as such they don't fall into the quantitative piece
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