The process for determining portfolio manager compensation has increased in complexity with the growth of the alternative asset management industry, and the increasingly ferocious competition for top talent. Management is left to find a balance between rewarding their employees for superior performance in a given year, while encouraging loyalty and long tenures through the use of complex deferred compensation packages.

When our client came to us, they had just completed a detailed process mapping exercise outlining the process by which the General Partner (GP) Compensation was determined and the complex calculations involved in determining bonuses and subsequently dividing them into cash and deferral components. Challenges arose from the manual nature and general lack of appropriate technologies to support the process. Further complicating matters was the necessity to comply with Internal Revenue Code section 409A, that regulates the tax treatment of deferred compensation.

The client wanted a system that could automate the GP Compensation process and that would afford a level of durability and security not available in a system of disparate Microsoft Excel spreadsheets and at the same time, achieve compliance with 409A.

FinServ brought in a team of seasoned professionals having an extensive background in systems integration and development along with the required industry experience from the world’s largest alternative asset management firms.

The team instituted a Rapid Application Development (RAD) approach to designing, implementing and deploying the compensation system, using Visual Basic for Applications (VBA) with a Microsoft SQL Server 2005 backend as the primary development tools. The system FinServ built facilitated the management reporting and generation of compensation awards for all types of employees. Output of the system was formatted for upload into Optlink, a 3rd party deferred compensation plan administrator application offered by Optcapital, that tracked net deferred compensation balances for employees and ensured client compliance with 409A.

The end result was a robust compensation system that went beyond the clients original expectations by handling the calculation of bonus awards for not only General Partners, but every type of client employee.

The real-time centralized system for compensation reduced overhead and streamlined the previously manual and labor intensive process by capturing changes as they occurred eliminating the risks associated with out-of-date data and reconciliations to one off excel schedules. In addition the new system reduced turn-around time for critical liquidity analysis. Moreover, utilization of Optlink to manage deferred compensation balances has enabled client compliance with 409A.