Portfolio Manager Compensation in the U.S. Mutual Fund Industry | Zendy

Linlin Ma | Zendy; Yuehua Tang | Zendy; Juan-Pedro Gómez | Zendy

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Portfolio Manager Compensation in the U.S. Mutual Fund Industry

Author(s) -

Linlin Ma,

Yuehua Tang,

Juan-Pedro Gómez

Publication year - 2012

Publication title -

ssrn electronic journal

Language(s) - English

Resource type - Journals

ISSN - 1556-5068

DOI - 10.2139/ssrn.2024027

Subject(s) - portfolio , business , mutual fund , manager of managers fund , finance , compensation (psychology) , closed end fund , fund administration , target date fund , open end fund , actuarial science , financial economics , accounting , fund of funds , economics , corporate governance , institutional investor , psychology , market liquidity , psychoanalysis

We use a novel dataset to study the relation between individual portfolio manager compensation and mutual fund performance. Managers with explicit performance-based pay exhibit superior subsequent fund performance, especially when investment advisors link pay to performance over a longer time period. In contrast, alternative compensation arrangements, such as fixed salary, assets-based pay, or advisor-profits-based pay are not associated with superior performance. Our tests further show that the positive relation between performance-based contracts and fund performance is not driven by the selection of talented managers proxied by education background. Lastly, managers with performance-based pay engage less in risk-shifting activities.

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