Deferred Compensation if you get fired
Hi guys, looking for a quick advise here regarding deferred compensation.
Assuming MM HF structure. Would those be reasonable assumptions?
- PM gest 25% of comp deferred (How does this change for analysts?)
- Deferred period 4 years with linear vesting?
- If you leave on your own, comp not vested is forfeit to the fund
- If you get fired for underperformance, what happens to the deferred comp? I assume you also lose it, but just making sure.
Many thanks for anyone with information on "market standard"
Based on the most helpful WSO content, here are some insights regarding deferred compensation in a Multi-Manager Hedge Fund (MM HF) structure:
Deferred Compensation for PMs vs. Analysts:
Deferred Period and Vesting:
Leaving on Your Own:
Fired for Underperformance:
If you're navigating this situation, it's always a good idea to review your specific employment agreement or consult with HR/legal advisors to confirm the exact terms of your deferred compensation.
It'll be in your contract (most likely they'll keep their options open to decide on a case-by-case basis with a phrase like "at the sole discretion of the firm")
But FWIW, "vesting" is more of a technology thing, less common in finance. Deferred comp is money you've already earned so it would be a *really* dick move to refuse to pay that deferred comp to someone you fired. I've never seen anyone lose that (except for clawbacks when your bonus was based on accounting that was restated, or if you did something illegal or if you you go to a competitor -- in those cases, you may forfeit your deferred). But baring those, I've never seen it not paid out.
The worst I have seen was they held on to your comp for 3 years invested in their fund, and then they gave you the money but they didn't give you any of the profits from those 3 years. That's semi-standard, which sucks, but at least you did get your money back.
No you don't lose it. Standard case is contractually paid to you if fired for performance reasons. You lose it if fired for ethical reasons (committed a crime, did something highly unprofessional, etc.) or resignation to join a competitor (there is almost always a path to collect for retirement).
The primary purpose for deferred is to make it more expensive for competitors to hire you.
Understood. Thank you.
A short follow-up - is mandatory co-invest common? I understand that analysts get their base + discretionary bonus and PM gets formulistic payout. I am trying to understand what limits / special clauses do platforms or established funds in general impose.
For example, you get your base (deducted from pod PnL topline), % payout on PnL to distribute to the team / yourself. Part of that might be deferred but will be paid out pretty much every time + maybe you have to / are heavily incentivized to invest in the fund as well? If so, would this be on fee or without fee basis?
Agree with the above, I would caveat it by saying that a lot of times at the pods, if your pod gets fired they will try to repod you. If you are on a good team, then this often means being repodded to a worse team. So if you are on a good team and your PM gets fired, the firm can use the deferred comp as a hostage to make you stay at the fund on a worse team, even if the new seat is worse than what you could find externally.
You could perhaps try and bomb the replacement interviews intentionally, but I haven't heard of anyone doing this (although I am sure it happens).
Also - when your pod loses money, a lot of times the lost PnL is taken out of your teams deferred comp pool on a prorata basis. This means if your PM is being fired, you will most likley lose a chunk of deferred comp from the PnL you lost.
How can a good PM get fired though...
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