Firms struggle with compensation issues

Financial firms — whether they are receiving funds from the Troubled Asset Relief Program or not — are grappling with compensation and bonus issues in the down market.
“There was a systemic repricing of compensation in the financial service sector last year,” said Cornelia Kiley, a managing director and co-head of asset and wealth management at Russell Reynolds Associates Inc., a New York-based global executive search and assessment firm.
Since September, executive compensation at financial services firms dropped anywhere from 25% to 50%, she said.
“Everyone was cut,” she said. “That was the general trend, and that will probably hold for 2009.”
In the current climate, firms are exploring various ways of structuring compensation to decrease reliance on bonuses, such as increasing base salaries, deferring more cash compensation and instituting clawback provisions.
“Bonuses will continue to be performance-based,” said Alan Johnson of Johnson Associates Inc., a New York-based executive compensation consultant.
“But they’ll include provisions that you have to give some of it back if the firm loses money in the future,” he said. “Then you have to question whether you are making it so complicated and convoluted that the executive will go work for another firm.”