FUND managers will find it harder to give themselves big increases in their bonuses during bull markets under rules proposed by the government, a leading superannuation group says.
About half the cost of managing the nation's $1.3 trillion in super funds is accounted for by payments to fund managers, with the industry on track to make $9.4 billion in revenue this year.
A key complaint of investors has been that managers' performance fees can appear to be "win win".
According to this criticism, bonuses tend to rise in line with the sharemarket but, when markets fall, salary packages are re-negotiated to include a larger portion of fixed pay.
But the Australian Institute of Superannuation Trustees says the practice faces a crackdown when new criteria are introduced with MySuper, a no-frills super product beginning in July next year.
For instance, draft MySuper legislation suggests fund managers may be forced to pay back bonuses from previous years when they underperform the market. As well, bonuses would have to be based on longer periods of market performance and could only be determined on an after-tax and after-fee basis.
The chief executive of the association, Fiona Reynolds, said the draft criteria represented a "good steep in the right direction".
"We need fee models that reward fund managers when they have demonstrably contributed to asset growth and out-performance," Ms Reynolds said.
Ms Reynolds said there was still a "get out clause" that would allow funds to overlook the government criteria, but they would have to prove such an approach was in the best interest of members.
The standards are part of MySuper, but Ms Reynolds said they were likely to apply to performance fees in other super funds.
The proposal comes as the government seeks to raise the superannuation guarantee from 9 per cent to 12 per cent by 2019-20.
"In a compulsory super system where you have legislated growth of 12 per cent, super fund members need to be confident that fund managers are only be paid performance fees when they earn them," Ms Reynolds said.
When the government released the draft MySuper legislation last month, the Minister for Superannuation, Bill Shorten, told BusinessDay some fund managers' pay was excessive.
"We've increased super from 9 to 12 per cent, but we don't want to see that all frittered away by fund managers clipping the ticket on the way through on people's retirement earnings," Mr Shorten said.
The criteria for performance fees is contained in draft MySuper legislation, which is open for industry consultation until tomorrow. The government expects to have legislation ready by the spring sitting of federal parliament.