Underpaid even @ 7 figures??

So a buddy of mine works at a L/S fund that was up well over 30% last year. Over $5bn AUM, and only like 10-20 IPs. It's a name brand fund a lot of you would know. He's been there for over 4 years, and he made $1.5mm. For a "relatively senior" analyst to only make 1.5 bucks, seems kinda low for this situation, no? I've heard of 3rd year analysts making like double that last year. Dont get me wrong, that's a shit ton of money, just seems like he was underpaid. And he came up with good ideas and did good work, so were not talking about some nutjob here. Bright guy. Maybe explains why he never wants to go out anymore, feel bad. 

What do you guys think fair comp should have been? For context, he did $1-1.2mm the year before and the fund was up like 15% or something lower than that...

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Comments (25)

May 16, 2021 - 6:22pm

From the info you provided I'm not sure if there is enough to know what is fair comp. I think there are people who make careers out of figuring out what is fair comp

  • Investment Analyst in HF - EquityHedge
May 16, 2021 - 6:32pm

Probably depends a lot on his perceived contribution to pnl, no? I heard management at smaller funds often pay you based on the value they believe you add.

May 16, 2021 - 6:46pm

Everyone was up last year lol

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  • Investment Manager in HF - Other
May 16, 2021 - 6:51pm

Hard to tell with the info you provided. 

Things to consider: PnL contribution, seniority of others in fund (including partners and their cut), contract (what terms did they agree to?), hurdle (probably not at a L/S), fee structure at fund (are the actually collecting 2/20?), etc

Hard to tell if this person is a "relatively senior analyst" with 4 yrs. Hate doing this math, but with 20 investment professionals, 30% return ($1.5bln), 2/20 fees you have $300mm split among everyone. 

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  • PM in HF - Other
May 16, 2021 - 9:01pm

If he's questioning he is underpaid he probably is. But most people pause at the second question, can he achieve the same success elsewhere...

Remember he is not alone everyone at the fund thinks, year1 15% was x, year2 30% was 2x. It could be year3 is 8%, and he gets .8x. He just has not seen year3 yet...

  • Analyst 1 in AM - Equities
May 16, 2021 - 9:15pm

thing is, even if he's underpaid unless he's an absolute rockstar it is going to be quite difficult finding a sustainable seat where he can pull 3-4 million (again, unless he's a total rockstar). 

Funniest
May 17, 2021 - 9:23am

Yes, that is how capitalism works. Capital, not labor captures the vast majority of profits of a business. Has your friend quit his job over his compensation? Demanded a bigger cut? What incentive do the owners of capital (partners) have to give labor (your friend) a cent more than they need to retain him or someone else with equivalent value-add?  

I'm not a communist / socialist but it's always hilarious to me when the people who ardently defend (and benefit heavily most from) capitalism suddenly see its flaws when it negatively affects them or someone they know. 

  • Associate 1 in IB - Cov
May 17, 2021 - 10:50am

This is such a strange post.  How did you go from a guy making $1.5m/year that thinks he's underpaid and turn that into a criticism of capitalism?  If making $1.5m and feeling underpaid is the biggest criticism of capitalism then I'll take that every day of the week.  Better than being socialist and hungry. 
 

Like really though what was your point in writing that?  

May 17, 2021 - 10:55am

Here, let me spell it out for you: OP's friend (labor) believes he delivered significantly more than $1.5mm of value to the company he works at. Unfortunately for him, capital reap the vast majority of the profits in the current system. In that system, he is *not* underpaid - he's being paid exactly what his value is to the owners of capital, rather than the value he's generated for the firm. 

Either OP's friend is underpaid and being harmed by a system that is too heavily tilted in favor of capital (vs labor), or he is being paid exactly the right wage and has no right to complain. This post only makes sense as a critique against capitalism (albeit inadvertently). 

Again, I'm not a communist or socialist - I'm a firm believer in capitalism. I just think it's funny when people who most likely will shut down any dialogue by lower earners to get better compensated for their value (i.e. blue collar workers or retail workers) suddenly have some sort of epiphany about the relationship between labor and capital in this country when they feel they themselves are undercompensated. 

May 22, 2021 - 10:47am

Anyone working at a high finance shop making seven figures is a massive beneficiary of the capitalist system. They literally are skimming off the capital. This person would be making much less for the same job in a true communist or socialists state (where they would likely be working for a government entity performing the same function).

May 17, 2021 - 10:28am

It doesn't matter whether you think you're underpaid. It only matters whether there's another company that would pay you more. If there is a higher offer, then yes, you're underpaid and go take that other job (or use that offer as leverage with your current boss). But if there's no higher offer, then you're already making the maximum possible, so how can you say you're underpaid?

May 17, 2021 - 11:01am

Yup - if his is friend can't leverage his value for higher pay or lateral to another fund that will properly compensate him, him being underpaid only makes sense from the perspective of labor theory of value - which is a Marxist idea. Under capitalism, he is being paid literally exactly the amount he should be. 

May 18, 2021 - 1:36pm

hard to say what is fair without knowing terms of his comp structure, but overall seems somewhat underpaid. would've expected $2-4mm. $1.5mm is max 60-70bps of the incentive fees, assuming $5b aum, 30% returns, and 15% performance fees. simplifying the math obviously.

May 19, 2021 - 2:56pm

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