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Remuneration is not just a number

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  • Remuneration is not just a number

Sarah Dudney offers remuneration committees some words of advice for Bonus Decision Time.

More sleepless nights are slated for much of November. This concerns not only Occupy St Pauls camped in the City. As we all know, November is Bonus Decision Time, so now all leaders in asset management go into a huddle with their Remuneration Committees to agree an executive decision on the size and distribution of the 2011 bonus pool.

This is not just a test in sleep deprivation for CEOs. It is also a test for tomorrow's leaders of fund management who have to test their mettle on the dilemma of how we reward success. What we discuss and implement this bonus season will resonate in 2012 and far beyond.

The battle lines of this particular debate are well marked - see analysis and commentary from the Archbishop of Canterbury, Bob Diamond and Ken Costa. A think tank close to St Paul's Cathedral has now weighed in with a poll of 515 City professionals headlining 'most city workers believe colleagues are overpaid'. So what really are we worth? This is best answered by honestly asking: what have we actually delivered to our clients?

As CEOs today know, there will be a highly defined public position, and then there will be much private grief as fund managers wrestle with their conscience. Even if Occupy St Paul's had not taken place, this year would have been particularly challenging in any case. Here in the UK, the FSA has laid down some 12 key principles in its own code on remuneration, so this November presents a steep hill of compliance we all need to climb.

In summary, the code covers principles on the structure and nature of guaranteed bonuses, retention and proportion in shares. Most HR professionals can recite this code in their sleep and spend hours intoning it to colleagues in the business. Often, they second colleagues to intone it some more. Somehow, the message will get through, they tell me.

This period will be also of interest to those in St Paul's as they work to open new angles in their debate. They tell the media they see an unsustainable system, where the winners take all and the losers are the enforced lender of last resort - ad infinitum. They will not shed tears when they read also from economic forecasting unit CEBR that inevitable restructuring in the City will mean significant headcount reduction.

So the next question is, how can we do more on less? Who are the new ambassadors for the benefits of a thriving financial services sector?  They quickly need to find future leaders who can explore the deadly ambiguities of our industry, and that is that remuneration is not a number. They are now not just looking for future leaders who can manage clients, they need to build sustainable and innovative investment performance.

Asset management leaders and their successors need to consider individually and in groups the following dilemmas at this time of year:

Looking ahead to 2012, how can we continue to develop and demonstrate to stakeholders that we have a transparent remuneration code of practice that is operationally resilient and delivers best results for our clients? Is there a way in which we can build into our fund management business a system of rewards that can offer attractive non-monetary incentives? How do we secure our long-term corporate reputation as an industry in this debate?

The answers to these questions may not be found in an easy boardroom discussion.
 

Not Just a Number
The other day, a senior board member at a major asset management company drew me a simple outline of the solution. He drew road signs, just as you see outside St Paul's on the road as you walk down Ludgate Hill and up to Fleet Street. Every arrow represents stakeholders in the ideal scenario. The arrows are parallel, comfortable in neat alignment, a triumph of geometry, with arrowheads all pointing in the same direction. The past he sketched in arrows all in disarray - fingers pointing in accusation at each other.

Alignment is easy to draw. This individual felt passionately about the need not just to draw a solution, but to work through that dilemma. He wanted to show his team and his clients that  agreeing remuneration processes was a key moment, when alignment could be achieved through discussion, conclusion and execution. He told me of the need to execute this through a strong collegiate culture of 'all for one and one for all'.

'Remuneration is not just a number' was his message. Something in the way he said this made me feel that some people would get some sleep in January. But not everyone.

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