COMPENSATION IS DRIVING THE WAR FOR TALENT



By Roger Urwin

Thursday, May 17, 2007



In the war for talent so far, talent has been the winner. This is particularly obvious in the key worldwide financial centres where the search for talent is feverish and the compensation often startling.



Talent is being drawn from a much wider base, in an increasingly fluidglobal market for people. Movement between investment banks, mainstream and alternative investment managers and consultants is now commonplace.



Investment firms need "rainmakers" ? people who make a real difference in creating value for that organisation, and its clients. They may have skills in investment content, marketing or delivery.



The complexity of the marketplace produces opportunities that are increasingly specialised.



Organisations need people who can take analysis and interpretation to a deeper level than the level that worked before. They also need people who can pitch their ideas persuasively, with good client empathy particularly valued.



Organisations also welcome those who thrive under change. Change is much faster in the investment industry because, with the streamlined technology that supports knowledge accretion, innovation flourishes in a fraction of the time it used to.



A new product that took five years to get traction in the past could now make it in 18 months. The best talent works at speed, thinks in multiple strands and crosses disciplines with ease.



The specialised silos that exist in most investment businesses bring a leadership challenge. For most organisations it is critical to combine the silos into a single cohesive business.



This requires leaders who understand all the pieces, can join up these propositions and inspire a firm-wide vision. That old virtue of experience may be undervalued here.



Whichever way you look at it, good leadership seems to be in short supply.



Compensation has been the strongest force in the war for talent so far. This is particularly evident in the alternatives areas. Hedge funds in particular have grown up quickly. Not surprisingly, the search for fresh talent here has been intensive. The high fees and margins of these areas have bid up the price to be paid for that talent and the same may be coming true for private equity.



This can be viewed as a failure of the market to price talent correctly. Without a more realistic fee structure and value proposition, it is likely that salary imbalances and, as a consequence, talent imbalances will continue.



This bubble is not on the point of collapse, but is likely to deflate as funds adjust to the lower returns that are likely going forward.



The new culture of compensation is about payment by results. Such approaches are in principle good in aligning interests and attracting top talent, but effective implementation is crucial as they can also be divisive.



It is easy to be sceptical about how effectively and fairly this system is working. Whose results? What results? Results over what period? None of these are easy questions to answer.



There is a bit of self- delusion at work, with an under-talented but over-expectant segment asserting that their skills deserve high short-term rewards. They are prepared to move on for a better package if the short-term reward does not match their expectations.



The industry has a way to go to build the dream structure in which compensation is appropriate and fair and works holistically as part of a well-balanced food chain adding value to all stakeholders.



This begs a question as to where skills have most opportunity to add value in the investment system. Surely, there is a big issue with the relativelylimited resources of institutional pension funds where compensation and talent have so far been limited.



The irony is that this is the place where clear thinking and action have their best chance of performance success.



While talent has been unfashionable in this sector, there are signs of a slow turnround. It would be surprising if pension funds were not in a stronger governance position in five years' time built on a number of good people making a move in this direction. Funds need to be prepared to use payment by results compensation to achieve this.



The same case can be made for the value-added segment of consulting, which should grow massively if it secures its talent.



These days the "employer of choice" needs to excel in all these four dimensions to succeed with talent: ● Work fulfilment ? personal autonomy, stimulating, influencing, achieving something of societal importance.

● Work culture ? teamwork, independence, ethics, great colleagues, freedom from bureaucracy and politics.

● Personal development ? opportunities for broader and deeper personal growth.

● Compensation ? absolute levels, also how fair is the deal, ownership interests are particularly valued.



The most important of the forces at work in the longer term is that more people will seek more "meaning" from their work. Altruistic motives will drive more people's choices.



To end on a positive note, the investment industry has done a good job in building up its talent pool. With stronger skills applied to governing funds, we should see this talent more effectively producing value for its stakeholders.



The beneficiaries of the system should be members of defined contribution funds who, having lost the relative safety of defined benefit pensions, surely deserve the best ingenuity that this talent can offer to deliver them retirement security.



Roger Urwin is global head of investment consulting at Watson Wyatt
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