Bonuses are still a touchy topic in the financial services industry, but Neil Hennessy, chairman and chief investment officer of Hennessy Advisors shrugs off the industry bad vibes on the subject.

All 20 employees at his company, including himself, receive bonuses, and he's proud of it.

"People say that bonuses are bad, that compensation is bad. I say bonuses are a great system for compensation," Hennessy recently told MFWire. "It is easy to just pay somebody $500,000 a year with no bonus. I'd rather pay that person $200,000 a year and give him or her a bonus of $300,000. The incentive is there to make that person to do his or her best on behalf of the shareholder. The more shared benefits, the more we benefit."

At Hennessy, 60 percent of an employee's bonus is based on how the much money the company made for shareholders. This is pretty much calculated from the earnings figures, Hennessy said. The other 40 percent comes from the employee's individual goals achieved that year.

"It depends on how the company did and how they did personally. If the company didn't make any money and they didn't perform, then there is no bonus, but I haven't experienced that with anyone yet," he said.

Hennessy is prepared for plenty of public grumbling over the bonuses that will be paid employees at the end of 2013. For example, as a result of Hennessy acquiring the $1.9 billion mutual fund business of FBR, revenue for 2013's first quarter (Hennessy's fiscal year ends on September 30th) jumped from $1.7 million to $4.7 million, with earnings per share leaping from 3-cents to 13-cents.

Hennessy already has his argument prepared for grumblers.

Point One:
Before the FBR acquisition, there were only 11 employees. These 11 employees not only managed the $850 million in the nine funds already managed by Hennessy before the deal, but they also put together the deal themselves to buy the $2-billion, 11-mutual fund business from FBR.

Point Two:
Three years in a row people at the company made less money because the company didn't make as much money. They are still here though. they are working hard and know the good times will come back. If the company does well, the shareholders do well. It is really not rocket science.

"If you look at the years leading up to 2007, we hit highs in compensation, and then in 2008, 2009, 2010, the bonus pool shrank considerably," he said.

Point Three:
It's a great motivator, Hennessy explains He put it this way:

Managing a mutual fund company for the shareholders is becoming difficult and increasingly difficult on a daily basis. We try to minimize employees and maximize their performance. You still have the same duties on a daily basis in our business to keep up with the daily regulatory market we are in. People around here multitask. They are all multitalented. They can all do many things at once -- everybody but me, that is.

Point Four:
He notes the longevity of his employees. One has been with Hennessy for 13-years, another 11, another ten.

"And these are people who suffered through the crash, getting paid less for three years in a row,"he said.

Ultimately, Hennessy says, "I have no qualms when people say we pay our employees too much."

He gives his employees a living wage — which employees use for rent, food and vacations and such. "We are below the industry average by far in terms of salaries," he said.

However, Hennessy said that the big point about the salaries is that this is the money his employees live on. The bonus really translates into investable capital for the employee.

"It keeps everybody focused," he said.

Another key element of how Hennessy's company handles compensation is the fact that they close their books for the year on September 30. Ending the year then, Hennessy says, allows employees to get their bonuses before Christmas, allowing them to plan how much they can spend during the holidays.

"At most other companies, people don't get their bonuses until February, maybe late January. They don't really know how much they should spend during the holidays. Getting the bonuses before the holidays really takes pressure of everybody," he says.

The subjects of compensation, and bonuses, have become hot topics yet again amongst asset managers as the recent market upticks have bolstered many of their earnings sheets.

For example, the compensation Sun Life paid to its American fund subsidiary MFS was hotly debated during the discussion of the Canadian parent's earnings.

The formula used in calculating bonuses at Eaton Vance was also heavily discussed during a review of that company's earnings. 

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