Employee incentive compensation at institutional firms, including investment banks and traditional and alternatives managers, could fall between 5 and 25 percent, a new analysis from compensation consulting firm Johnson Associates…

“If you overlay inflation and employee expectations, it’s going to be a hard year to manage morale,” said Alan Johnson, founder of the firm. “The other thing that’s happened is obviously the labor market has cooled dramatically… Employees, if they’re not happy with their pay, there will be fewer places to look at.”

Private equity firms may still be alluring for employees, though. Year-over-year, bonus compensation is expected to remain flat. But going beneath the surface, incentive fees, or carry, could start impacting the bottom line for employees.

“Over the last decade, there’s probably been an unusual amount of stability in carry payouts and the frequency in them,” Johnson explained. “Prior to that it was more episodic, but over the last decade, it’s been very predictable.”

Across the board, it’s clear that in institutional investment management, the party is, to some extent, over. Now it’s on leadership to manage employee expectations.

“The message should be: ‘You’re paid competitively and fairly compared to others,’” Johnson said. “’Within the firm, you’re paid well compared to your colleagues and with the market.’ People in this industry are paid well compared to what I call ‘the real world.’”

Institutional Investor / November 14, 2023