The year is nearly over. If you work in finance, this is a special time. It's when we can look back and think about lessons learned, be thankful for our families and co-workers. A time to... hahaha, Just kidding. Bonus time is coming! This is when we find out if we’re buying a Corolla or a Ferrari. If we can afford to move on to our third wife.
If you work on the buy-side, compensation is all about the team. If the firm does well, so should you. If the team does well, so should you. In theory, it's all about sharing the wealth - at least that's what they will tell you at the start of the year.
At the end of the year, it’s a whole different story. There may not be an ‘I’ in “team”, but there is an ‘I’ in “compensation”. Two I’s in “getting paid”. And four I’s in “making it rain, bitches!!!”
I Before E? I Definitely Comes Before U.
I am an analyst in a hedge fund. The problem with being me - and any analyst - is that I am not the one deciding how to allocate the compensation. It’s the portfolio manager (PM) that decides comp. So the PM becomes the “I”, and the analyst becomes the “U”. I’m not sure when I comes before E, but I definitely comes before U. Also, there is no U in Ferrari.
Now, everyone on the buy-side is greedy. And PMs are the greediest. Whenever I’ve had a bad year, no PM has ever paid me more than what they were obligated to. None of them ever said, “You didn’t have a great year, but I’m going to pay you more, because we’re a team.”
However, this does not work both ways. If you’re an analyst who has outperformed the rest of your group, you know the “team” speech is coming. “Yes, you generated the majority of the profits this year. But you can’t look at it like that. We’re a team, so we need to distribute it evenly. Don’t worry, you’ll appreciate it when you have a bad year.”
Let me give you a hint – you won’t.
If you’ve read through this carefully, you’ll notice that the analyst has gotten underpaid when he/she has outperformed the rest of the group, as well as underperformed the rest of the group. So where did all the money go??? This is why your PM drives the Ferrari, and you drive the Corolla.
Margin of Saving was created by an analyst at a multi-billion dollar hedge fund to help others learn how to invest and save.
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