Performance Based Compensation
Performance based compensation is a form of compensation for the investment management work depending on quality of results. Performance base compensation is very common in investment management industry and helps to reach better results for the investors.
Performance based compensation may be used by investment managers (as well as fund managers and portfolio managers) personally or by investment management companies (funds) that are taking performance fee from their clients. Investment management companies usually apply 15%-20% performance fee but not many companies do that and it depends on the strategy of investment management fees.
If investment company applies performance fees on its investment products, compensation of the portfolio manager most of the times depends on performance of investment portfolio. Sometimes portfolio manager may be remunerated when he beats the benchmark, which is quiet fair in the case of long term approach. Sometimes performance based compensation may even allow bonus for the manager when he underperforms the benchmark but the total result of a portfolio is positive.
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