Asset Managers Increase Compensation Governance
Amid redemption stress, asset management firms are reportedly expanding their compensation governance practices. This trend signals potential compensation cutbacks in the sector later this year. The increased scrutiny highlights a need for transparent and defensible compensation strategies in industries facing economic pressure.
- Pay for senior investment employees has been more significantly impacted than that of junior or corporate function employees, as a larger portion of their compensation is tied to longer-term performance, which will continue to be affected by the challenging market conditions of recent years. - The push for greater governance extends beyond compensation to fund operations, with regulators like the Financial Stability Board and International Organization of Securities Commissions scrutinizing liquidity mismatches in open-ended funds and proposing tools to manage redemption pressures during market stress. - To enhance governance, best practices for compensation committees are evolving to include a more strategic integration with the company's overall business model, a focus on succession planning, and direct communication with major shareholders about compensation philosophy. - The financial services industry is ahead of other sectors in pay transparency, with firms being 54% more likely to disclose pay equity results, a trend accelerated by investor pressure and a growing number of state and local laws requiring salary range disclosures in job postings. - In response to new pay transparency laws, some financial firms have increased employee compensation to remain competitive, as the public availability of salary data creates more competition for talent with non-financial firms. - Artificial intelligence is being integrated into compensation management to conduct real-time pay equity analysis, benchmark salaries against market data, and model the financial impact of compensation adjustments, helping to create more defensible pay strategies. - A Mercer study indicates that AI and automation could take over more than half of a rewards team's workload, with about 40% of HR leaders already using AI for benefits administration and talent management. - For product leaders, generative AI is being used to analyze extensive market data, customer feedback, and industry trends to identify new opportunities, prioritize features, and align product roadmaps with market demands, enabling more data-driven strategic decisions.
