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Carried Interest: A Breakdown

Carried Interest or the “carry” refers to the percentage of the profit received by fund managers. Commonly, a manager who oversees a fund on behalf of limited partners receives a share of the profit from any investment gains. By way of example, a hedge fund manager usually receives 20% of the profits. Essentially, the carry rewards managers for enhancing fund performance, and serves as a useful incentive-based income.  While “profits” can be manipulated, good definitions, as well as clawbacks and collars serve to protect both managers and their funds from compensation swings.

If you have any questions about your carry, tax or any other executive compensation questions, contact us today.

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Executive Trends – 2011

As the first year of Dodd-Frank comes to a close, we recap the major trends in executive compensation from the previous year:

  • Focus on structure, design and stability of executive contracts as economy begins to pick up
  • Closer communication with shareholders
  • Significant concern with external governance and pay for performance
  • Emphasis on accurate goal-setting and formula to measure performance

Predictions for 2012 and beyond:

  • Pay for performance will continue to be the flavor of the day, taking up a higher percentage of overall compensation
  • Continuing efforts to streamline and improve formulas and metrics to measure performance
  • Deeper reliance on peer groups and focus on long-term incentives
  • Further attempts to eliminate inefficient pay practices
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