A little communication upfront can save a ton later on

Tue Oct 23, 2012

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Subpoenas can fly when ex-employees feel aggrieved. Often a balanced portrayal of a job and its earnings potential can forestall litigation.


By Robert Olman

This week I received an Information Subpoena from one of the mega-law firms only Wall Street could support, demanding any and all information I possess relating to a defunct hedge fund and onetime client. Actually, the firm never launched, nor raised any investor capital, nor purchased or traded any assets, so defunct is inaccurate. Lets say instead a sans argent hedge fund. Many years ago, when you and I were just a wee bit shinier and slightly less skeptical than today, the founder was distinguished and the fund was predicted to be one of the biggest launches of the year. As so often happens, for various reasons, the launch fizzled.

But it seems, years later, that an ex-employee of the firm (whom I never represented) has brought an action against the founder for various tranches of compensation he believes he deserves, yet did not receive. Thank the gods of alpha for learned counsel, these fearless litigators at the ready to protect the interests of the innocent. Yet our plaintiff is no lamb. No, he is a rock star. A senior portfolio manager, a risk-taker, who managed upwards of 100 traders, generated $100s of millions in profits for a grand banking institution, an athlete who successfully navigated and bested every political, financial and economic obstacle in his path for over 15 successful years on the Street: a big macher by any definition.

I'm of the belief that both the plaintiff and the defendant/hedge fund founder may wield equally the sword of righteous indignation as only the truly wronged may. That said, as a search professional (and taekwondo enthusiast), a consultative front snap-kick to the cranium could help each party avoid similar problems in the future.

Being dragged into court-enforced time consuming regurgitation of files, faxes, emails and notes brings the issue to my doorstep, as it may someday to yours.

It is for this reason and others that my clients go to great lengths to ensure that a prospective employee has a very clear understanding of the risks involved in his future employment. The performance of the fund and the rise and fall of its fee-paying assets trump an employee's personal performance as the dominant variables in establishing bonus pools every time with no exceptions. As we have all experienced some time in the past four years, compensation can be quite lumpy, with outsized bonuses one year and little or no bonuses another year.

The best firms acknowledge that reality can boast solid employee retention numbers (and no litigation, one would hope), by very specifically communicating what an employee can expect. Every successful candidate should receive his offer with a conversation at the partner or founder level when a balanced picture of compensation upside, downside and what I term reasonable degree of expectation over a multi-year period is explained clearly and at length. The candidate must then buy-in or opt-out. It's a system I've seen create highly productive teams, a consistent firm culture and enviable employee retention numbers. It's free and it works.

The alternative, which I've also seen far too often, involves firms only giving candidates the good projections and offering unreasonable expectations. "We'd be so surprised if you didn't hit your target by year end," is a common phrase at these firms. I've also seen people told they'll earn "x" and then their employment contract says something completely different. "Oh, we can't put that in writing," the firm will reply, "but what we told you is totally reasonable." This is how employees come aboard and then, in a short while, leave. The better firms would rather let someone walk before joining than come aboard and be unhappy at the end of the year because he'd been told a load of bunk.

And what of our litigants and lawyers? I'm not saying that a perfect understanding of the risks way back when would have meant there'd be no lawsuit today. People bring suits for all kinds of reasons. But perhaps if so, their solicitors would have a few less billable hours for the year and I would have one less Information Subpoena on my desk.

Robert Olman is president and chief executive of New York recruiting firm Alpha Search Advisory Partners.

ISSN: 2151-1845 / CDC10004H

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