Tis the Season of Bonuses
The holiday season is quickly approaching, and you’d think that portfolio managers and analysts would be in a joyous mood. If you think those smiling faces at Christmas parties are genuine, you don’t know much about my former business. We are now officially in the season of unrealistic expectations. As the remaining days in 2012 dwindle, investment professionals are preparing for year-end evaluations and bonus conversations. Some of these meetings will only take place next year, but everyone from lowly analyst to exalted hedge fund manager is wondering what they’ll be paid for their efforts during the year. And, partners and owners are figuring out how much they’ll have to pay out.
One thing is certain. Everyone working at an investment organization is going to be distracted for the next couple of months, and the distraction will not end when the bonuses are actually paid out. Rather than coming into work and focusing on investments and the financial markets, portfolio managers and analysts are going to be gossiping about the potential size of the bonus pool. Then they’re going to retreat into their offices and cubicles to ponder their bonus and convince themselves that they are entitled to an outsized share of that pool. If there’s a quantitative formula built into their bonus, they’ll be modeling their potential payout in a spreadsheet.
Meanwhile, the executive recruiters will be trawling. Once the bonuses are paid out, the most desirable employees will be free agents. So the recruiters are busy arranging clandestine meetings where investment talent can be wooed by rival money management firms. Even folks who are happy in their current jobs will sneak off to have breakfast with a rival hedge fund or private equity firm. The logic is straightforward. If their bonus is disappointing, they’ll need to go some place where people value them. And even if their bonus is spectacular, they can always use a job offer from another firm to get a big raise and some guarantees.
The bosses are gathered in conference rooms trying to gauge how small they can make the bonus pool and still keep the key talent happy. Every dollar they pay out in bonuses is one dollar out of their own pockets. They’ll also be rehearsing the script for the year-end conversation. The idea, of course, is to find the right amount of flattery to make the employee feel great about the bonus check. By the way, the words are almost always irrelevant because the employee isn’t listening to anything other than the amount of the bonus.
When bonus meetings finally occur, there are three predictable outcomes:
- · The people at the bottom of the totem pole, such as administrative assistants and mailroom clerks, will be the happiest recipients of their bonuses, even though their checks will be microscopic in comparison to all the senior professionals.
- · The portfolio managers who receive the biggest bonuses will be the least satisfied. If the star manager gets $5 million, he was expecting $10 million. Or, if he gets $10 million, he’ll be upset because he suspects that someone else got $15 million. After leaving the meeting, his first phone call will probably be to the headhunter.
- For the rest of the professionals, the thrill of receiving a six or seven figure check will dissipate by March of next year. Once the money is safely in the bank, the portfolio manager or analyst will start to think he should have been promoted or received a big raise. He’ll also start to think about next year’s bonus, which he’ll firmly believe should be significantly larger.
As Easter and Passover approach, everyone will get back to business. Those who cashed in their bonus and took another job will be gone. Those who used a job offer to get a big raise and a guaranteed bonus will be done negotiating a bigger pay package. And everyone else will be sick and tired of the closed-door meetings and ready to build the case for a huge bonus at the end of 2013.
As 2012 ends, most people in the real economy will be happy to have a job or will hope that 2013 brings them employment. In the world of money management, it’s time to carve up the spoils and be unhappy about your share.