Even within a difficult market, remuneration levels are booming - both in funds management and industry superannuation.

But other non-financial incentives are taking a more prominent role in attracting potential employees to boutiques and not-for-profit funds.

Financial Recruitment Group executive director Peter Dawson says that over the past few years major superannuation funds have had to adopt new remuneration processes to attract the right people with the shift for super funds to bring investment management in-house rather than outsourcing to asset consultants.

But building that in-house investment capability has been something of a challenge in a sector that has traditionally lacked the incentives to draw in the best investment specialists, Dawson says.

Unisuper, for instance, recently went into the open market to recruit new people to its investment department.

"We went out to the wider market to ensure that we recruited the best possible candidates," Unisuper chief investment officer David St John says.

"We were looking for people who could bring new skills and experiences into the team, as well as specialist expertise in property, infrastructure and private equity asset classes."

In the past there was always a big gap between what industry super fund managers and retail managers were prepared to pay, Dawson says. The system has been steadily changing, but there are still some legacy issues from the times when remuneration was tied to the public sector award system, he says.

"They're aware of the issue though. And many of the bigger funds are realising that to attract the right people they have to relate remuneration levels to a more commercial market related model," he says.
 
Show me the money
In its recent survey of the remuneration levels of fund executives, staff and trustees across 102 super funds, McGuirk Management Consultants found overall remuneration of executives within the super industry rose by 9 per cent in the past year. 

For many trustees drawn from a union background, justifying those increases has involved a major philosophical step, Terry McGuirk says.

"They're living in a world of CPI (consumer price index) increases, and where they are fighting hard to get 3-4 per cent increases for their own industry," McGuirk says.

The reality, however, is superannuation and funds management is very much a supply and demand-driven sector, he says.

That has particularly been the case with investment specialists, who have been able to to command 14 per cent more on their base salaries than the same time last year.

"There's a lot of competition out there for good people and if you're looking for someone who is wanting a bit more, you're going to have to pay for it," McGuirk says.

However, while the remuneration gap between super and other fund managers may be narrowing, particularly at the senior level, there are still gaps in terms of bonus levels, Dawson says, and still little in the way of long-term incentives.

"If you're working for a major investment manager, you'll not only get bonuses for short-term performance but you'll also get long-term incentives in the form of options and equity ownership," he says.

Those incentives can represent up to a third of the remuneration of a senior specialist, he says. McGuirk's remuneration survey found around half of super funds now have a performance incentive system.

The level of reward is certainly on the lower side, he concedes, amounting to around 20 per cent of base salary, compared to funds management where specialists can more than double their salary on the basis of bonuses.

But it is a system that is expanding, and McGuirk believes the move to performance incentives becoming common practice within industry super funds is "inexorable".

The sheer amount of money going into super has drawn attention from prospective employees who may have previously had eyes only on the funds management industry, he adds.

"Super is now on the radar of people who may not previously have thought of industry super as a place for a career. It's seen as a dynamic interesting place to be," he says.

Fortunately for the not-for-profit sector, industry super is able to attract people not purely on the basis of financial reward.

"The people who work for industry funds are definitely those who believe in working to profit members rather than purely themselves. They're interested as much in the culture and the working environment they can provide," McGuirk says.

Meanwhile, retail fund managers are facing their own challenges to retain their top investment managers in an environment where boutiques are regarded by the market, and by investment managers themselves, as a more conducive environment to allowing the talents of the best and brightest to flourish.

Craving independence
In December 2007, the entire team at Suncorp Investment Management decamped to set up a new boutique Australian equities fund under the aegis of Pinnacle.

Pinnacle managing director Ian Macoun says his firm had been aware of the team for some time and waited patiently for a signal that they were ready to move on from their institutional home.

"They're amongst the best in the business, they were experienced and they were very good. Clearly they just needed the right home in which to shine," Macoun says.

He believes the team craved the independence to run their business, as well as the ability to be able to focus purely on investing free from distractions. "Here their own interests could be directly aligned with that of their clients," he says.

Each team member has an equity stake in the new Solaris funds, a move Macoun believes will ensure the stability of the team.

Retaining good staff is hugely important in an industry that suffers sorely from skill shortages, he says.

That makes it essential for fund managers to find ways of retaining investment specialists once they get them on board, but it's a task that has become increasingly difficult within institutional fund managers he says. "There has been an enormous amount of turnover amongst investment institutions," he says.

He believes institutions - whether they be super or retail investment managers - are not the kinds of places that the best and brightest investment talent tends to flourish.

"It is in the nature of institutions that they are set up to do a range of different functions. They're good at things like distribution and financial planning for instance, but they're not good at investment management," he says.

For the team that came to Solaris it was as much the fact that they would be able to stay together as a team that cemented the appeal of the offer, than any financial incentive.

"They'd built up camaraderie and had a common mission and vision and they wanted to be able to hold on to that," Macoun says.

Destiny's child
Human resources consultant Avril Henry says a sense of control over one's destiny is as important as the level of remuneration in determining whether an individual - or team - is happy to stay where they are.

Henry believes that is the case with gen Xers and even more so with the up-and-coming gen Ys.

"These generations want to be paid fairly for what they do - and they'll do the market research to make sure that what they're being offered is in line with market rates, but unlike baby boomers they're not particularly motivated by financial security. What they are motivated by is being part of a great work culture and being led by inspiring managers," she says.

For fund managers the key to recruiting the best people is to identify what you offer that is unique, she says.

"What people are buying is not just a job, but a work culture that they want to be part of," she says.

Flexibility has to be part of the offering, she says, not because younger generations are 'slackers', but because they hate being micro-managed.

"They want to be trusted," she says.

Work-life balance is important too, she says. Gen Xers want to spend the time with their kids their own parents sacrificed for their work.

Financial security may loom a little larger this year given the difficult market conditions.

Dawson says that while last year there was "quite feverish activity" in the market as teams hived off to create their own boutiques, that is likely to calm down in these more cautious times.

"If you look inside each case scenario what you will find is yes there are a lot of successful people, but they also need to be very financially well off to do so. The fact is that your remuneration relies entirely on building market share. And given the time it takes for your fund to be reviewed and put on recommended lists, in the first year or two you will probably be making very little money. You certainly need to approach that kind of thing with a long-term plan," he says.