Compensation and Benefits Tutorial | Performance-based compensation

Performance-based compensation- Performance-based compensation is based on incentives and is reserved for elite portfolio managers or hedge fund managers. The compensations are nearly always based on a percentage of the total assets managed, and is paid out if the above pre-specified level of returns is met by the portfolio manager. Often, hedge fund makers are paid 20% of client profits if the returns exceed the predetermined benchmark.

Performance Management System (PMS)

The purpose of the performance management system is to ensure that:

The work of the agency is accomplished by the work performed by employees.
Employees have a clear understanding of the quality and quantity of work that the agency expects from them.
Ongoing information about the effectiveness of their performance in relation to expectations is received by the employees.
Distribution of awards and salary increment is done on the basis of employee performance.
Employee development opportunities can be identified.
Employee performance that does not meet expectations is addressed.

Elements of PMS

A performance management system consists of:

A process for communicating employee performance expectations, maintaining ongoing performance dialogue, and conducting annual performance appraisals.
A procedure for addressing employee performance that falls below expectations.
A procedure for encouraging and facilitating employee development.
Training in managing performance and administering the system.
A procedure for resolving performance pay disputes.

Functioning of PMS

Performance management consists of management processes that ensure that employees focus their work efforts towards contributions to achieving the agency’s mission. It consists of three phases, namely: (a) setting expectations for employee performance, (b) maintaining regular interaction between supervisor and employee to keep performance on the track, and (c) measurement of actual performance in relation to performance expectations. It is the responsibility of supervisors and managers to ensure good performance from employees. The implementation of the three phases is specified by individual company policies. Performance management practices that fit best with the requirements of this policy, and are appropriate to the nature of the work performed and goals of the organization are adopted by the company.

The module includes: