What is an incentive fee?

Incentive fee is a fee that is paid to the financial expert as a reward for good performance. Motivation fees are most often considered to be compensated for offered managers of funds, such as mutual funds and hedge funds, but other people in the financial industry can receive such fees. The fee is structured into the contract offered by the employer and is considered part of the total package of compensation of the person. When checking job offers, people who work in the financial industry usually check their contracts carefully to see if incentives and bonuses are compared with those offered by other companies. From the point of view of parent society, it is better to manage something like the fund, the more money it makes because the company takes the percentage of earnings. If the fund is well managed and grows, the parent company has a larger profit range. In addition, it attracts more customers because investors tend to prefer resources that generate permanent revenues.

While managers of things like funds are probably interested in doing the fund well, the motivational fee is another reminder that they are doing well. The fee for motivation is usually connected. When the fund is doing well, the manager receives more compensation. The funds for a fee are usually taken from the fund itself, unlike the general funds held by the parent company.

The practice of offering motivation fees is not controversial. Some people claim that fees support risk behavior because the fund manager that eager for the fee can lead dangerous investments to move the fund's value to access to the incentive fee. However, risk investments also also the fund administrator, because if the fund is reduced and lost, no performance fee will be received. The fee also acts as a motivation to invest cautious.

Incentives can also be offeredWhen companies in other areas of the financial industry receive above -average returns. People, such as commodities, general partners and brokers, can be offered a motivational fee for handling resources in their care responsibly and supporting the growth of the parent company. These fees are separate from bonuses, although sometimes the motivational fee can be built into the bonus depending on the terms of the contract.