Fund managers are getting carried away when it comes to pay, says Roger Urwin, global head of investment consulting at Watson Wyatt.
In the war for talent so far, talent has been the winner. This is particularly obvious in the key worldwide financial centres where the search is feverish and the compensation is often startling. Talent is being drawn from a much wider base in an increasingly fluid and single global market for people.
Investment firms need 'rainmakers' - people who make a real difference in creating value for the organisation and its clients; they may have skills in investment content, marketing or delivery. Organisations also welcome those who thrive under change. Change is much faster than it used to be in the investment industry thanks to the streamlined technology which supports knowledge accretion - innovation gestates and flourishes in a fraction of the time it used to. The best talent works at speed, thinks in multiple strands and crosses disciplines with ease.
Compensation has been the strongest force in the war for talent so far. This is particularly evident in the alternatives areas: hedge funds have grown up very quickly. Not surprisingly, the search here has been intensive. The high fees and margins of these areas have bid up the price and the same may be coming true for private equity.
Rising compensation may be good news for individuals at investment firms, but it can also been seen as a failure of the market to price talent correctly. The new culture of compensation is about payment by results. Such approaches are in principle good in aligning interests and attracting top talent, but effective implementation is crucial as they can also be divisive.
In today's marketplace, some investment specialists can take the view that they are simply worth it. This is a bit of self delusion at work - I see an under-talented but over-expectant segment asserting that their skills deserve high short-term rewards (without the risks?) and they are prepared to move on for a better package if the short-term reward doesn't match their expectations. The industry has a way to go to build the dream structure in which compensation is appropriate and fair and works holistically as part of a well-balanced food chain adding value to all stakeholders.
In moving towards this, it's important to remember that compensation is not the only consideration when it comes to where talent wants to work. The search for better culture and more meaningful work is leading to a move at the margin to smaller, more collegiate organisations. 'Employers of choice' need to excel in four dimensions to succeed with talent:
· Work fulfilment
· Work culture
· Personal development
If there is one word that captures a distinctive employer brand it is 'independence' - personal independence. People don't like selling the organisation's party-line; rather, they want the independence to sell their view of how to do best for their clients without organisational baggage.
On a positive note, I feel the investment industry has done a really good job in building up its talent pool. With stronger skills applied to governing funds, we should see this talent more effectively producing value for its stakeholders. The beneficiaries of the system should be members of DC [defined contribution] funds who deserve the best ingenuity that this talent can offer. I think the war for talent can surely have more than one winner, potentially it could have millions.
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