How Does one Remunerate a Hedge Fund Team?

My colleague and I today spent a long time analyzing the best way to incentivize a new member of our team.

Do we all share equally in the bonus pool (me included = CEO), or do we maintain a hierarchy, and furthermore do we introduce a meritocracy system?

The problem with meritocricy is the element of discretion as a research analyst is not always able to quantify the $ value they have brought to the company.

The system that I have in mind is as follows: an agreed % of the bonus pool is decided. It then remains for senior management to decide whether the party concerned in fact qualifies for the bonus. The actual amount then falls subject to a formulae. The only negotiation revolves around the predetermined % of the bonus pool, and the discretion of the manager to determine whether the merit is in fact in place.

To protect staff from bonus pool abuse, if management are not happy with the staff member they need to follow a set of rules to document a trail of measures to ensure the staff member stays on track for bonus recognition.

In the event that the staff member continues to underperform a system of demerits is to be put in place that will 1st see the staff member reduced to 50% of their original bonus participation. A further demerit will result in no bonus and the discussion of either cutting ties or agreeing for the employment contract to be reinstated.