you get what you pay for!
From WSJ, By ROB COPELAND
Steven A. Cohen is boosting the bonuses he pays to the top traders managing his $11 billion family fortune, but only if they beat the market.
The move is in some ways a return to the free-spending ways of Mr. Cohen’s former hedge-fund firm, SAC Capital Advisors LP, which stopped managing outside investors’ money after the firm pleaded guilty to insider trading three years ago.
It also reflects pressure on the hedge-fund industry to deliver better returns than benchmark market indexes. Mr. Cohen’s firm, Point72 Asset Management LP, doesn’t manage external money, but the billionaire filed documents this spring to set up a new firm that can eventually seek outside funds.
Point72 had been paying its stock pickers a fixed 20% bonus on investment returns regardless of how they performed against broader benchmarks. That meant they could be paid handsomely just for matching a rising market.
Under the new bonus system, Point72 will boost those payouts to as much as 25%, but it will only pay the top bonuses on so-called alpha, industry parlance that roughly translates to investment performance above a market benchmark.
I think if you pay for performance you will get what you pay for. However it's a good optionality to make a bonus if you do well and get zero if you do a lot worse!. The best system is of course some long term measurement. if you did very bad last year you have to come back before you can make a BONUS.
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