Among the many challenges for the asset management industry under discussion at this year's FundForum 2016 in Berlin was the issue of talent.
How can businesses align their talent acquisition and retention strategies to ensure the future success of their business?
Joel Davies and Mark Miles from McLagan tackled the topic in a brief but illuminating discussion at the start of Wednesday morning's main agenda.
The future of pay in asset management
For most firms, talent is their largest expense, representing between 50% and 70% of a company's base. In a cost-constrained world, CEOs are increasingly looking at how to drive more value from what remains their greatest asset.
If there was one key message from their session, it was this: the way firms approach pay has to change.
"In the last five to six years a consistent share of revenue in asset management firms has been shared with employees as pay," explained Joel Davies.
"Going forward, businesses need to focus on that spend, and on making the best return on what is a significant investment."
The questions business leaders need to ask themselves, he argued, were: where does that money go and why? Is the investment being efficiently and effectively spent? How is it distributed?
"These questions will become more pertinent as we enter more challenging times for industry, and those challenges will undoubtedly carry some pay implications," he said.
"A combination of fee pressure, some weaker asset values, and shareholder demands, will put some downward pressure on pay quantum overall. As a result, we are likely to see greater pay differentiation than in the past. We also expect to see some more tailored programs, in order to reflect the new and revised roles that we are likely to see."
"Firms will look to dislocate new pay quantum from previous pay quantum, and break that link to the past."
Employee value proposition is the key to future success
Firms are operating in a tighter regulatory framework, and their industry practices are under more scrutiny than ever before. In a squeezed pay environment, they will need to look at their broader employee offering - their employer value proposition - in order to compete.
"Most of us do similar things in pay and benefits, but firms that can tell a compelling story of why their firm is the place to work, and why their offering is different, will have a big differentiator in the future," explained Joel. "I think we'll see more of that, particularly around flexibility of work and recognition programs, these things being more important to employees."
The impact of technology
Technology is of course where the competition for talent is at its hottest. Being able to offer something outside the traditional financial services approach is key. These differences include offering a career progression that is less structured, with more sideways and linear move options, as well as exposure to different technologies.
"One of the biggest factors is the technology itself. A primary issue is the perception that the technology that we use is outdated. A huge hurdle for firms is, can you get them to work on what is perceived to be outdated tech?
"The culture in tech is quite different; freedom for innovation, tolerance of failure, these are things firms are having to look at as they bring on board tech talent."
A data-driven approach
Mark showed us how, in the private wealth space, there were areas that were really impacting the sector, adding that these were also relevant to the financial space in general.
First, using a measure of productivity: a correlation between how much you pay people and how much they generate for the business, either in revenue or asset terms.
"You should see a linear progression," he explained. "Pay should be broadly correlated to business performance."
"Typically, however when firms do this for the first time you see a scatter graph; no correlation whatsoever."
"Where the more progressive firms are going with this is to identify retention risks – those with high performance and low pay – and using it as a tool to ensure you are differentiating your pay, and to say ‘why do we have people in the low performance high pay quadrant?’”
A very similar approach can be seen in the client experience space, by breaking it down in a rigorous way and understanding all the steps that the client experience includes.
Again, the successful operators' approach showed a correlation between performance and client satisfaction.
"The common theme is all of these things are underpinned by a more objective, data-driven scientific approach on how businesses are being managed and lead," he said.
It’s not rocket science
Changing how pay and performance is delivered and measured was not rocket science, Mark reassured us.
"It's understanding what elements of that client experience, and what productivity measures, are driving success, and trying to replicate those in your talent acquisition. Are you hiring people with the right traits and behavioural skills that will deliver the right business performance? Are you embedding these in your scorecard metrics? Are you building that into our training and development programs?
"This isn't about reinventing the wheel. It's taking some of this insight and sharpening and refining what we have."
"Adopting that more tailored approach, and building it into core HR processes, will mean firms will be much better placed to be successful."