Incentive Pay Under Fire

Currently, there’s a greater focus by politicians and the public on income inequality, environmental issues, and diversity and inclusion, said Alan Johnson, managing partner at compensation consulting firm Johnson Associates. “I think those are not necessarily the traditional bank risk measures, but for a large, visible financial institution, they are going to be under more scrutiny, and it won’t be the traditional [risk issues such as] solvency.”

Rather than focusing on whether banks are lending to the wrong people or taking on unsustainable balance sheet risks, politicians are more likely to dig in on reputational risk and societal impact, Johnson said.

He expects a greater share of companies to introduce environmental, social and governance metrics, and particularly metrics having to do with diversity and inclusion, into their incentive plans for 2022. He said many companies are ascribing between 10% and 20% of annual bonuses to ESG.

Meanwhile, under rules by the Securities and Exchange Commission coming out of the 2007-2008 financial crisis, boards are required to probe compensation plans under their oversight duties with respect to enterprise risk management. For a large financial institution, most formal ERM reviews regarding compensation look at traditional balance sheet risk issues and the design of various incentive plans within the bank, Johnson said.

“The reputational risk is more at the executive level, and I think firms are trying to do that,” Johnson said. “The problem is, it’s a moving target…”

According to Johnson, well-designed incentive plans offer boards wide latitude to alter their course in the case of unexpected circumstances such as the pandemic, or reduce payouts when warranted. “If senior management messes up badly, they have the flexibility to pay dramatically less or fire them,” he said.

Agenda / September 20, 2021

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Financial Services Employees May See Meaningful Compensation Increases by the End of the Year

“After being down dramatically earlier in the year, it looks like pay is going to be up nicely this year — double digits for some people,” Alan Johnson, managing director at Johnson Associates, told Institutional Investor. “I think that’s a pleasant surprise because it was somewhat unexpected.”

In the first half of the year, alternatives carried the asset management industry. In fact, private equity funds saw a five-percentage-point increase in projected 2021 incentive funding from 2020 expectations. The PE sector saw massive upticks in fundraising and realizations, which ultimately led to the increase in compensation, according to the report.

“In asset management, the stars are the alternatives,” Johnson said. “Particularly, private equity is the queen of the ball.”

Johnson said the end-of-year compensation boosts will garner a “so-so” reaction from employees in the mentioned sectors: “I think the people in the industry will feel the pay increases are nice, but with all the stress and work and disruption that’s going on, I think people will feel just OK.”

For junior talent, Johnson said the comp increases may not be enough to keep them in the business after a year of minimal recruiting, decreased retention, and complaints of feeling overworked.

Institutional Investor / August 9, 2021

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Top Money Managers are in Bidding Wars Over Diverse Talent, Making Eye-popping Counteroffers to Land Candidates

Alan Johnson, managing director and compensation consultant at ​Johnson Associates, said that despite the big push from firms to hire more women and people of color, significant progress could be extremely slow — to the frustration of many.

“After 50 years of excuses, many people don’t want to hear any more excuses,” Johnson said.

But he thinks it will take years to see visible change in the industry, particularly at the leadership and senior level at money managers.

“You can’t create mid- to senior-level portfolio managers from scratch,” Johnson said. “It takes 10 to 15 years to get them to that level. And it will take a long time. If you don’t have that many people in your pipeline…unfortunately that’s going to be the reality.”

If firms can’t attract an influx of young minority professionals to the industry — as well as retain and develop them throughout their careers — the war for talent at the bargaining table won’t do much to improve the diversity picture on Wall Street.

And without a bigger-picture perspective, firms will still be vying for what may be a handful of minority professionals, particularly at senior levels, Johnson said.

Business Insider / August 5, 2021

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Junior Salaries Rise as Top Companies Struggle with Young Employee Retention

Even the most prestigious companies have struggled to retain junior employees in recent months as the mental toll of the pandemic and demanding expectations drive out young talent.

“There’s a shortage of experienced junior people,” said Alan Johnson, who is the managing director of Johnson Associates, a compensation consultancy that works with financial services firms. Landing a job at the most high-paying Wall Street companies is fiercely competitive among recent graduates. Retaining those employees, however, has caused headaches for executives…

Junior compensation plays a large role in giving employers an edge against competitors. Many professional services firms compete against one another to recruit talent from top universities. Offering higher salaries than industry rivals can help win over young talent, according to Johnson.

“I think they’re part of the same ecosystem,” Johnson said of major corporate jobs. “Many of those people recruit at the same schools, the same MBA programs, so coming out there’s similarity in pay and opportunity.”

Many companies participate in salary planning surveys to determine compensation levels within the industry and across different positions. That planning has taken on heightened importance this year as employers handle a surge in pandemic- and stress-driven departures by junior workers.

“We’ve told clients that the end-of-the-year pay process this year will be very important,” Johnson said. “It’s going to be a really important year, and make sure you pay people what you think you have to.”

SHRM / July 6, 2021

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Wall Street Bids Up Junior Banker Salaries in Battle for Talent

A full-scale bidding war has broken out on Wall Street, this time over young bankers, as firms struggle to attract and keep talent after the pandemic added to famously crushing workloads…

“There’s a lot of competition for the best people,” said Alan Johnson, managing director of the Wall Street compensation consultancy Johnson Associates. “I think everyone is going to be moving to $100,000 now.”

Bloomberg / July 2, 2021

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First-year Analysts at JPMorgan Will Now Make $100,000

JPMorgan Chase (JPM) is raising the salary of first-year analysts to $100,000, up from $85,000, a person familiar with the matter told CNN Business. The pay hike, which takes effect July 1, means some millennials and Gen Zers will be making six-figure salaries fresh out of college…

The hikes will make JPMorgan the most lucrative big bank for junior analysts — a shrewd move amid an ongoing war for talent between Wall Street and Silicon Valley, where many tech firms offer greater flexibility for remote work.

Alan Johnson, managing director at compensation consultant Johnson Associates, said the moves are a sign of “healthy business and a tight labor market.”

CNN Business / June 29, 2021

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