Sell- and Buy-Side Bonuses

[Gary Seinfield]

I have two questions that are somewhat related:

1) If you're a sell-side analyst, and you're supporting the senior analyst, how is your bonus determined? Is it based on the performance of the senior analyst and agreed upon ahead of time (e.g., a certain % of base if analysis/reports are completed in a certain time frame and/or they meet a certain accuracy benchmark) or is it discretionary on the part of the senior analyst that you're supporting?

2) All of the job postings that I've seen for buy-side analysts with a few years of experience say "a track record of effective buy/sell recommendations." How do you show this if you're simply supporting a PM who's actually pulling the trigger, since the performance of the product won't necessarily reflect your recommendations as an analyst? How are bonuses usually determined for buy-side analysts? Does the group get a bonus for performance and then the research director/MD doles out money based on who he feels contributed most?

I'm throughly confused, as I come from a completely different industry. At my firm, I'm given certain objectives at the beginning of the year. If I meet them by the end of the year, I get the bonus. If not, I get nothing. There is no gray area. However, bonuses at investment banks and investment management firms seem to come after the fact (i.e., at the beginning of the period, things are not as clear and defined, but if you and your group do well, you know you'll be rewarded).

Someone help me to understand this.



Edited 1 time(s). Last edit at Thursday, October 12, 2006 at 10:22AM by Gary Seinfield.

 

[Bambi]

) All of the job postings that I've seen for buy-side analysts with a few years of experience say "a track record of effective buy/sell recommendations." How do you show this if you're simply supporting a PM who's actually pulling the trigger, since the performance of the product won't necessarily reflect your recommendations as an analyst? How are bonuses usually determined for buy-side analysts? Does the group get a bonus for performance and then the research director/MD doles out money based on who he feels contributed most?


I have been buyside analysts at two different places
my performance was measured via a synthetic fund - I have to create a long short universe with all stocks under cover and this turns every day and every minute
whilst it does not really reflect reality its at least objective
other parts of my objectives include number and quality of research (we write internal research)
further part of bonus will be a vote by the PMs
and last but not least 15% of my bonus depends of the funds performance but this is only on the upside, no points can be taken away

 

[Gary Seinfield]

Thanks, Bambi. A synthetic fund is more sophisticated than I expected. Is this typical, or are your firms unusual in this regard? Also, can you define what you refer to as quality of research? What do PMs consider when voting?

Can anyone else provide some feedback, either buy- or sell-side?

Thanks,
Gary

 

[Bambi]

I am not certain if its typical but its the second firm here in paris where I experience it, and it makes sense, it mimicks a fund

voting is more for client service, level of knowledge and force of conviction

 

[CFAAtlanta]

I am on the buyside as well. 60% of our bonus depends on our performance measured using a synthetic fund as Bambi mentioned. Basically each analyst has to beat the equal-weighted benchmark consisting of his/her universe of stocks. S/he does that by overweighting some companies while underweighting others. Unfortunately, there are no trading costs, limits portfolio turnover or risk. As such, I think the incents an individual to be a trader rather than an analyst.

Bambi, can you provide more details about your synthetic fund and limits?



Edited 1 time(s). Last edit at Friday, October 13, 2006 at 06:49PM by CFAAtlanta.