If the European parliament gets its way, hedge funds will soon be required to defer 40% or more of their bonuses. They will be obliged to do so over a period, ‘which is appropriate in view of the lifecycle and redemption policy of the fund.’ And they may be obliged to defer 60% of bonuses where the amounts under consideration are considerable.

The proposals are contained in a document known as ‘Annex II’.

As things stand, the European Parliament is all for its literal implementation , but the European Council is arguing that managers only need to ‘take account’ of Anex II. A final agreement will be thrashed out in the next month.

If deferrals are imposed on hedge funds, will this come as a shock? It depends who you talk to.

Most headhunters in the hedge fund sector say deferrals are already comparatively common, and have become a lot more so in recent years.

“There’s one fund that pays 20% over five years,” says David Durham, managing director at Durham Partners. “There are plenty of others that pay over three years.”

“Bonuses are usually deferred over three years,” confirms a managing partner at another hedge fund headhunter. “We’re seeing a lot more of them than we used to.”

Heads I win, tails I win

Jon Terry, head of the reward and compensation practice at PricewaterhouseCoopers in London, says deferrals have become more common at hedge funds ever since it became apparent that hedge fund bonuses aren’t flexible downwards after all.

“Even though performance fees fell in 2008, a number of hedge fund employees still expected to receive substantial discretionary bonuses,” says Terry. “The notion that hedge fund managers always receive a fixed proportion of their P&L proved unfit for purpose [once people were paid no matter what].”

Ken Griffin, for example, is said to have used his own cash to help prop up management fees at Citadel in 2008.

Hedge funds aren’t banks

The danger in deferring hedge fund bonuses is that funds aren’t banks. Having cash tied in to a volatile smaller fund that might blow up may not be palatable to some people.

Equally, at funds like Brevan Howard it’s said to be unusual for traders to last more than two years before they’re quietly ushered out the door. If so, a long deferral won’t seem very appealing.

Barry Seath, managing director at Mirage Recruitment says most hedge funds still don’t impose deferrals and that it would cause “lots of issues” around recruiting and retaining staff if they tried to.

However, Durham says there’s no rule of thumb when it comes to hedge fund pay as it currently stands: “Even within one fund, people are on very different packages. Everything’s negotiable – it all depends how strong your bargaining position is when you’re doing a deal.

“If you’re a new guy without a track record they might pay you 7-8% of your P&L deferred over three years. If you’re someone with a history of performing, they might pay 25% in year one.”