I’m trying to negotiate a bonus structure for a position I’ve been offered. There is tentative agreement that it should partly be based on a qualitative assessment of my performance based on hitting KPIs (HR’s phrasing) and partly tied in with investment performance. This is an anlayst position at a family fund. Any suggestions for how to tie bonus to investment performance? At the moment it looks like it will be based on a 3 year rolling average of fund returns. This could be structured as say if we get over a certain threshold you receive X, a higher threshold Y etc. Or it could be that if the fund is up 10%, you receive 10% (or 10%*X) or something like that. Obviously I would like this to be as advantageous to me as possible but has to sound reasonable to the firm too.
What about vs benchmark? If S&P is down 15% and your fund is up 5%, no bonus? If the S&P is up 30% and your fund is up 11%, yes on bonus?
1morelevel Wrote: ------------------------------------------------------- > What about vs benchmark? If S&P is down 15% and > your fund is up 5%, no bonus? If the S&P is up > 30% and your fund is up 11%, yes on bonus? This. It should be on a relative basis to invent most effectively for both parties.
But rationally, you would prefer an absolute return bonus to a relative return bonus. SPX has positive returns on average. So if you choose a relative return bonus, you will expect to deduct a positive value from your bonus every year. If the bonus is based on average performance, you will expect a positive return since your benchmark drifts upwards.
ohai Wrote: ------------------------------------------------------- > But rationally, you would prefer an absolute > return bonus to a relative return bonus. SPX has > positive returns on average. So if you choose a > relative return bonus, you will expect to deduct a > positive value from your bonus every year. If the > bonus is based on average performance, you will > expect a positive return since your benchmark > drifts upwards. Depends on the year 
Well, markets do have down years, but that should not affect your preference towards absolute or relative return bonuses. If you are average investor, your expected relative return is zero (since overall, the returns of all market participants will average to the market return). However, absolute return has positive expected value.
Thanks. I’ll ask them what benchmark they use.