As I understand it, carried interest is not like income from a job, it is a return on an investment. First, a partner typically contributes some of his own money to a fund. The partners money forms part of the money the firm has to invest. Then the fund invests in a company, and the partner works to try to make it a success. If it is, the company pays off its investors first, and then provides a portion of what's left over (the 'carried interest', a term with its origins in commercial Atlantic shipping) to the manager. So: unlike a salary, which is paid regardless of the outcome, the manager stands to lose his investment in time and money, and not get paid a dime. In this respect, any income received should be properly viewed as a capital gain, not a wage. Now, if there is indeed such a risk, the reader might wonder why so many managers make gobs of money year after year. The reason is that the fund is not putting all of its chips on a single company. They invest in many, and a given manager will have worked with several in succession. Some will fail, but some will succeed, and they will provide him carried interest for some period of time. Having multiple investments means the payoffs will average out into what looks like a pretty good annual salary (but isn't, any more than a consistently good poker player would be considered salaried).