Has anyone put thought into what is optimal and why in HF salary negotiation?
Some example questions:
1) Should you put out a number first or vice versa?
2) What number should you put out relative to what you think is fair?
a) Does it, for example, make the most sense to ask for the highest number that would not offend the other party?
b) Or, is it better to just take what you think the range is and ask for 95th percentile?
3) When should you provide color on compensation expectations? Is it optimal to disclose towards the end of the process?
4) What information should you disclose to recruiters about compensation and when should you do so?
5) How do you think about the risk that, if you ask for too much, it will put a target on your back after you start? (because you become a larger line item)
6) Does the answer change if you are negotiating with a multi with passthrough fees? (e.g., all else equal ask for more since they are more incentivized to take risk in this way?)
Following
Same
Ah, the art of negotiation! It's a dance as old as time itself. Let's break down your questions:
1) It's generally better to let the other party put out a number first. This gives you a starting point and allows you to gauge their expectations.
2) The number you put out should be based on your understanding of the market rate, your experience, and the value you bring to the table.
a) Asking for the highest number that wouldn't offend the other party could work, but it's a risky strategy. You don't want to come off as greedy or unrealistic.
b) Asking for the 95th percentile could also work, but it depends on your confidence in your abilities and the value you bring.
3) It's usually best to discuss compensation expectations towards the end of the process, once you've had a chance to demonstrate your value and they've shown interest in hiring you.
4) When dealing with recruiters, be honest but also strategic. You can disclose your current compensation and your expectations, but remember that they're working for the employer, not you.
5) Asking for too much can indeed put a target on your back. It's important to strike a balance between getting what you're worth and not coming off as a cost burden.
6) If you're negotiating with a multi with passthrough fees, it could potentially change the dynamics. They might be more willing to take a risk on higher compensation, but it could also mean they expect more from you.
Remember, every negotiation is unique and there's no one-size-fits-all approach. It's all about understanding the other party, knowing your worth, and finding a balance that works for both sides. Good luck!
Sources: 7 Figure Hedge Fund Salary - Myth or Real?, Junior PM at a platform - How to negociate salary
Will bump with my approach. Happy to hear from others. Currently going through this right now...
First, I estimate a range for this year's expected comp and take the 75th percentile of that estimate.
Second, make any necessary cost-of-living or tax adjustments (if you're moving). These are more mechanical/objective so easier to do. This number sets the bottom of the range.
Third, try to put a value on the relationships at your current firm, and risk-adjust the opportunity put in front of you. I.e. if you're moving from a SM to a MM, you should probably haircut the MM comp by some %. This number sets the top of the range.
Fourth, subtract any value/opportunities the new firm will give you that you don't already have access to. E.g., if you're moving from the sell-side to buy-side, moving from a non-risk taking role at a SM to a sub-PM role at a MM, etc. This number is the "fair value of the opportunity" and should sit somewhere between the number from steps (2) and (3).
I'm looking for something in between my fair value and the top end of my range.
FWIW the above strategy got me a very good offer, basically at or above the top end of what one could reasonably expect given my level of experience. The recruiters managed 90% of the process until the very end, and then I dealt directly with biz dev.
The most important thing I learned coming out of this is that it really depends on your specific situation, what skills you have, how badly they want you, and how good you are. If you're good, and they really want you or someone with your skills, you have more room to negotiate. Otherwise, you'll likely get a fairly commoditized offer.
How do you risk-adjust the LT upside (in your example)?
Thinking if you're moving from SM to MM... idea being that SM comp can fluctuate quite drastically based on a number of factors beyond solely PNL (whereas the MM presumably is entirely formulaic). For an SM, you may be dealing with points/equity share in the fund where that can scale over time + ability to raise more capital in theory. Been through a handful of negotiations and tough to know exactly how to balance the upside around staying - if I know the realistic upside around what my equity can scale to and take a broad average of returns as an example over the last XYZ # of years, I know what my ultimate upside looks like with a reasonable degree of certainty but obviously allowing for the returns to be potentially lower.
For example if you're expecting to make $1m this year, take $750k as your first step. No CoL adjustment. Then the value of upside on say that $1m is that I can perhaps double my equity in 3-5 years. Let's say that would mean an additional $500k at the average return over the last several years assuming you get those points. So your expected $1m this year can actually be $1.5m in 3-5 years reasonably - with a similar level of risk (assuming you don't hit the average of your recent returns) as the MM seat with no guarantee around returns...
Curious any thoughts here.
So from your 4th point, if I’m breaking in from sell-side does this mean there’s not much leverage I have to pull a higher than minimum offer?
I think trying to estimate the optimal HF comp is indirectly, effectively the same as trying to predict the performance of your strategy. It's extremely difficult. Unless you're running an HFT strategy with a super high Sharpe, then picking performance and subsequently your comp, is like throwing darts. Instead of trying to optimise for a random variable, I would suggest approaching it from a personal risk profile perspective. If you're risk averse, then negotiate a higher base with smaller % cut, and vice versa if you're risk aggressive. The comp structure is set up to shift between certainty (base) and uncertainty (% cut), which should be based on your personal preference. HFs and prop firms prefer to offer their PMs / Traders a risk aggressive set up (low base + high % cut), because they want to put as much risk on the PMs / Traders as possible in order to minimise costs e.g. in an extreme example, if no PM / Trader of a firm is profitable in a given year, then the firm still has to pay base salaries while also wearing the strategy losses - therefore they want fixed salaries/costs to be as low as possible so they can continue business..
To add onto the good comments above, I'd say it actually completely depends. Are we talking analyst/PM? Junior/senior? SM to MM? MM to MM? Lot of variables but I'll take a stab at my input into these questions at large.
1) I think you wait until BD/hiring folks ask what your expectations are. I guess depends exactly on your LoE but if you're already on the buy-side I've found bringing up the numbers first based on your expectations/prior comp is fair game. Again the MMs are formulaic to a degree ex. guarantees but by and large there's some maneuverability.
2) Again this seems to depend on how badly you want the seat vs. current comp & level of satisfaction with your current comp. If you are completely fine with your comp as is, you can move up the %ile range to which you make your ask. Seems counter-intuitive (ideally you want to be making MORE if you're under-compensated) but it depends who holds the cards. If you're a strong analyst/PM who has either taken risk or will be in a seat at the next role taking risk, clearly this is less of a commodity and earns more bargaining power. The jr. associate at Citadel doesn't really have any bargaining power but they're also likely moving from sell-side to buy-side. If you're already well compensated the way I've laid it out previously is saying "this is what I'd expect in a year I didn't make any $" and then upside is XYZ. Alluded to it in my reply above but if you have equity in the PNL that scales every year, this makes it difficult to know exactly what to ask to risk-adjust for the equity you'd be leaving on the table.
3) I think you just wait until whenever they ask for your expectations.
4) When they ask, but again I think being honest with the recruiters about your comp expectations as well as getting their feedback on if that's realistic is always helpful. Recruiters are annoying but end of the day they only get paid if you get/accept the job.
5) No risk. Again if we're generally talking about MMs they're hiring you and paying up for you because they think you're capable of generating PNL that's worth what they paid for. They also have insane fee structures (to your #6) so my guess would be the difference between $500k here and there doesn't mean a ton to them... but that's me speculating. If you ask for too much and they hit it just know that the likelihood is that the "guarantee" is likely PNL driven and so you only get paid that if you do perform... so in essence if you have a "target on your back" it can only mean that you're performing well.
Earum omnis voluptate laboriosam officiis dolorum. Eum esse mollitia consectetur facilis sed quia enim. Sapiente voluptas esse autem non. Nisi est ex sit aliquam hic tempora tempore.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...