Performance-Based Compensation

DEFINITION of 'Performance-Based Compensation'

An incentive-based form of compensation that is reserved for hedge fund managers or elite portfolio managers. The compensation will almost always be based on a percentage of total assets managed, and will be paid out if the portfolio manager delivers returns above a pre-specified level, such as performance in relation to the S&P 500.

BREAKING DOWN 'Performance-Based Compensation'

Many hedge fund managers are paid 20% of client profits if their investment returns are over a predetermined benchmark. Under this form of compensation, talented hedge fund managers that manage large funds can easily earn tens of millions of dollars (if not more).

RELATED TERMS
  1. Two And Twenty

    A type of compensation structure that hedge fund managers typically ...
  2. Hedge Fund Manager

    The individual who oversees and makes decisions about the investments ...
  3. Management Fee

    A charge levied by an investment manager for managing an investment ...
  4. Funds Management

    The management of the cashflow of a financial institution. The ...
  5. Hedge Fund

    An aggressively managed portfolio of investments that uses leveraged, ...
  6. Multiple Managers

    A situation that occurs when an investment portfolio's assets ...
Related Articles
  1. Investing

    HF Performance Report: Did Hedge Funds Earn Their Fee in 2015?

    Find out whether hedge funds, which have come under tremendous pressure to improve their performance, managed to earn their fee in 2015.
  2. Professionals

    Financial Careers: Portfolio Management Jobs

    By Brian Perry This chapter will look at portfolio management jobs. These are some of the prestigious roles in the finance industry and involve directly managing institutional and retail client ...
  3. ETFs & Mutual Funds

    Why Hedge Fund Managers Make Good Advisory Clients

    Super-busy hedge fund managers should be viewed as an opportunity for sophisticated financial advisors who can step in and offer their services.
  4. Financial Advisor

    This Is How Much Mutual Fund Managers Make

    Learn about the high-paying salaries of mutual fund managers and the low level of transparency in income reporting by mutual fund companies.
  5. ETFs & Mutual Funds

    Taking A Look Behind Hedge Funds

    Hedge funds can draw returns well above the market average even in a weak economy. Learn about the risks.
  6. Trading

    Hedge Funds: Higher Returns Or Just High Fees?

    Discover the advantages and pitfalls of hedge funds and the questions to ask when choosing one.
  7. Managing Wealth

    Preparing For A Career As A Portfolio Manager

    Find out what it takes to win a spot in one of the most coveted financial careers.
  8. Markets

    Are Hedge Funds Chasing Performance?

    Learn why hedge funds have performed worse than the S&P 500 Index in 2016, and why they may overweight equities to play catch-up in the second half of 2016.
  9. Trading

    Hedge Funds Go Retail

    Find out how average investors are breaking into what was once reserved for the ultra rich.
  10. ETFs & Mutual Funds

    4 Reasons to Still Consider Traditional 2 & 20 Hedge Funds

    Find out why traditional 2 & 20 hedge funds are still worth considering as an investment, even though they have underperformed for the last several years.
RELATED FAQS
  1. Can you invest in hedge funds?

  2. What happens if you don't hedge your investments?

    Learn the purpose, advantages and disadvantages of hedging, and find out how to utilize hedging to enhance an overall investment ... Read Answer >>
  3. Where does a hedge fund get its money?

    Learn how a hedge fund is structured and how the managing partner of the fund goes about the process of finding and soliciting ... Read Answer >>
  4. What is the purpose of a hedge fund?

    Find out what a hedge fund is, how it is set up and why it is different than other forms of investment partnerships like ... Read Answer >>
  5. Can mutual funds invest in hedge funds?

    Learn about mutual fund portfolio management techniques and mutual funds' ability to invest in hedge funds, as well as new ... Read Answer >>
  6. Do hedge funds and mutual funds invest in commodities in high inflation environments?

    Hedge funds and mutual funds are very different types of investment vehicles.The contents of a hedge fund are determined ... Read Answer >>
Hot Definitions
  1. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  2. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  3. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  4. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
  5. Weighted Average Life - WAL

    The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. Once calculated, ...
  6. Real Rate Of Return

    The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other ...
Trading Center