Hedge funds often make headlines for their billionaire managers, but there’s a story unfolding behind the scenes that’s especially relevant right now.
As talent markets tighten and regulatory scrutiny intensifies, hedge funds are reevaluating how they attract and retain non-equity employees — from compliance officers and cybersecurity pros to operations and tech infrastructure teams.
These professionals don’t manage billions, but they’re mission-critical to fund performance and survival. Firms are now rolling out increasingly sophisticated compensation strategies to compete for this overlooked yet essential workforce.
For hedge funds, performance is defined as a culture. Much of a hedge fund’s success depends upon the sustained commitment of its non-equity and support employees. These roles include analysts, associates, junior researchers, operations staff, compliance officers, administrative assistants, trade support personnel, IT specialists, accountants, custodial staff, and data technicians. For these individuals, compensation is a strategic tool to motivate, reward, and retain critical operational talent.
Non-equity employees typically operate within a structured compensation framework. The components of their pay often include:
- Base Salary: Administrative support or data operations salaries range from $65,000 to $100,000. Trade support and IT support professionals typically earn between $80,000 and $140,000. Compliance analysts and reporting staff fall in the $90,000 to $160,000 range. Staff in custodial or administrative service earn from $50,000 to $80,000, depending on location and firm size.
- Performance Bonuses: Performance bonuses (20%-70% of salary) are also commonly tied to departmental performance, like low error rates, efficient reporting cycles, data integrity, and uptime for system infrastructures. Larger hedge funds increasingly use these metrics to determine bonuses.
- Profit-Sharing Pools and Discretionary Awards: More skilled employees may participate in profit-sharing arrangements. Some firms use discretionary bonuses to supplement base pay. Firms such as Citadel and D.E. Shaw are noted for implementing such incentives to hold on to their competitive talent.
- Deferred Pay and Retention Bonuses: For critical operations roles (e.g., compliance, cybersecurity), firms may include retention bonuses payable over time (i.e., 1–3 years). Often structured as deferred compensation, these must comply with the intricate rules of Internal Revenue Code Section 409A. Deferring compensation can help foster long-term commitment.
In principle, compensation should reflect job functions and specialization, but calibrating compensation to reflect competitive market practices is difficult. While PayScale and Glassdoor offer publicly available compensation data, these are limited in granularity and reliability, especially for niche financial roles. Internal audits validated against specialized data like Heidrick & Struggles and emoluments are preferred in those cases.
Providing employees with modest profit-sharing or shadow equity participation enhances loyalty. Shadow equity mirrors the growth value of real equity without conferring actual ownership or voting rights. This enables firms to reward employees based on enterprise value creation without diluting equity owners’ control. Some firms offer revenue-sharing pools or discretionary contributions to employee stock plans or 401(k) accounts as alternatives.
Robust healthcare plans, wellness stipends, tuition assistance, transportation subsidies, and flexible work schedules are also used. A 2024 survey conducted by the Alternative Investment Management Association (AIMA) cited flexible benefits as a key factor in employee satisfaction.
Compensation can be embedded within a broader framework of opportunity. Support roles should have access to certifications or training programs, and defined promotion pathways. Prominent firms invest heavily in internal mobility pipelines.
Retention Strategies for Non-Equity Hedge Fund Employees
Non-equity employees often experience high turnover due to limited advancement visibility or subpar compensation relative to industry alternatives. Firms can improve retention with:
Annual Compensation Reviews: Regular benchmarking against industry norms ensures that compensation remains competitive and morale remains high. Compensation benchmarking studies by Heidrick & Struggles and emoluments are often used.
Cross-Training and Mobility Programs: Encouraging employees to cross-train between departments enhances engagement and helps develop a versatile internal talent pipeline. These programs also prepare staff for unforeseen changes in organizational structure or strategy.
Cultural Inclusion in Compensation Philosophy: Leading firms embed inclusivity into incentive structures by recognizing the contributions of departments such as compliance, technology, and administration. Incentives include bonuses, milestone recognition programs, and cross-departmental performance sharing. According to PwC’s 2023 Global Workforce Hopes and Fears Survey, employees in financial services who felt their contributions were acknowledged reported significantly higher engagement and retention. By recognizing that non-investment roles are integral to value creation, hedge funds can build stronger internal alignment and long-term institutional resilience.
The Bottom Line: Building Value Beyond the Front Office
Hedge fund performance and success are supported by a well-compensated, motivated team of professionals across all tiers. Non-managerial and support roles are indispensable to the execution of a fund’s strategy. Compensation systems that are equitable, transparent, and growth-oriented are essential to attract and retain talent. As regulatory scrutiny increases and the talent market becomes more competitive, hedge funds must treat compensation at all levels as a strategic investment in stability and success.
Stephen Ferszt is the Chair of the Employee Benefits Practice at Olshan Frome Wolosky LLP. He may be reached at sferszt@olshanlaw.com.