Investment professionals of all stripes continue to draw a large portion of total compensation packages from bonuses and incentives piled on top of base pay, according to a Pensions & Investments survey.
The survey polled 186 money managers regarding their total earnings as shown on their 1994 W-2 forms, as well as their base salary, bonus or incentive compensation and other compensation such as equity, profit sharing and fringe benefits. Respondents included 47 chairmen, 31 chief investment officers, 56 portfolio managers and 52 marketing directors.
Chairmen were the highest paid firm executives, drawing a mean compensation package of $468,513 and a median total package of $363,000. Chief investment officers received a mean package of $241,664 and a median of $175,000, portfolio managers got a mean total compensation of $218,105 and median of $132,000. Marketing directors earned a mean total compensation package of $208,151 and median of $141,000.
Total compensation fluctuated widely among survey respondents, depending on job title and the region of the country. Total compensation of chairmen ranged from $4 million to $50,000, while portfolio managers' packages ranged from $1.65 million to $21,000.
Base salaries were only a small portion of total compensation, however.
Chairmen received a mean base salary of $181,459 and median base salary of $165,000; CIOs received a mean base salary of $143,300 and median salary of $120,000; portfolio managers earned a mean $110,926 and median of $90,000.
Base pay seems to be rising only nominally, in a cost-of-living type of movement, but incentives and bonuses are such an significant part of the package that salary diminishes in importance, said Diane Posnak, managing director of executive compensation consultants Pearl Meyer & Partners, New York.
When it comes to compensation, cash is still king, said Ms. Posnak. Only the more senior people and occasional star portfolio manager receive stock and options as part of their packages, she said. As far as club memberships and cars and drivers, firms assume well-compensated executives can take care of that on their own, said Ms. Posnak.
In general, bonuses and other compensation added a substantial amount to compensation.
The mean bonus for a chairman was $210,166 and the median was $150,000; the mean for a CIO was $61,056 and the median was $23,000; portfolio managers earned a mean bonus of $72,595 and median of $28,000; and marketing directors received a mean of $75,053 and median of $54,000.
CIOs receive smaller bonuses because, as firms grow larger, they are managing the investment process and not choosing stocks; it is the stock pickers who receive bonuses and incentives, said Michael Martinolich, managing director of Smith Hanley Associates, New York, an executive recruiting firm.
"It is sometimes hard for board members and folks who are setting compensation to justify paying CIOs more, when they'd rather pay the PMs who are picking stocks that are adding a value directly," he said.
The marketing directors' bonuses are a sign of the importance placed by firms on the continuous generation of assets, said Mr. Martinolich. Marketers will command higher compensation because firms will bid for the best asset gatherers they can find, he said.
Unfortunately, that also might lead to a strong concentration on asset gathering at the expense of client service, said Suzanne Currie, an associate at Crispi, Wagner & Co., another New York executive search firm. Because marketers are not compensated as much for retaining clients as for bringing them in the door, the client might end up feeling shortchanged, particularly in the case of wealthy individuals, she said.
Firms will tend to see the marketer as a liability on the books -drawing bonuses and trailers for bringing in assets past - rather than as a function that adds value on an ongoing basis, such as stock picking, said Ms. Currie.
The total earnings for investment professionals ranged from a high of $4 million to a low of $21,000.
Again, chairmen were the highest paid professionals, reporting mean total earnings of $380,110 and median total earnings of $300,000 across the country. Chief investment officers reported mean earnings of $188,301 and median earnings of $145,000; but portfolio managers were better paid on average, reporting mean earnings of $190,666 and median earnings of $129,000. Marketing directors trailed everyone, with a mean earnings of $176,130 and median earnings of $100,000.
Chairmen in the South are the best paid on average, with mean earnings of $494,000 and median earnings of $330,000, followed by chairmen in the Northeast, who reported mean earnings of $406,090 and median earnings of $250,000. Additionally, bonuses follow the same pattern; chairmen in the Southern states receive mean bonuses of $295,166 and median bonuses of $195,000. Portfolio managers' earnings were higher in the Northeast, with a mean of $262,099 and a median of $180,000; followed by the South, with a mean of $166,096 and a median of $175,000.
While the South might have been skewed slightly by some respondents - the highest chairman's earnings reported in the region was $4 million, compared to a high of $1.2 million in the Northeast - the high cost of living would explain the high totals for the Northeast. Additionally, a number of international and global management firms - which tend to pay higher salaries - are based in the Northeast, which also can drive up the totals, said Mr. Martinolich.
Compensation can take many forms, not only cash, but also in lifestyle, said Mr. Martinolich. Managers may be more willing to stay put in the Midwest to enjoy a better quality of life, even at a lower salary, he said. "People in the Midwest cannot justify an additional $50,000 to $60,000 (in salary) to justify the hassle of living in New York," he said.
The South is booming, and a staggering number of banks and money managers are opening offices there, said Ms. Currie. They will pay New York salaries to executives relocating there and have to give two-career couples an incentive to make the move, which might account for some of the high salaries, she said.
Additionally, the type of firm influenced the compensation at all levels, with executives at independent money management firms way ahead of their colleagues at banks and insurance companies. For example, the average total compensation at independent managers was the highest, with an average chairman's salary at $594,115; it dropped to $420,666 at insurance company-owned firms and to $194,000 at bank-owned money managers.
Banks have begun to increase their pay scales in the pension fund investment area, but not in the personal trust and investment advisory side, said Nicholas Crispi, president of Crispi, Wagner. Insurance companies have been more competitive in improving their pay scales, but banks mainly have increased them when there is some global investment orientation involved, said Mr. Martinolich.
Compensation of all kinds is trending up and totals for this year should be higher than the last year, said Pearl Meyer's Ms. Posnak. Even though the year is not over, it appears 1995 will be a good year for investments, and bonuses should reflect that, she said.
Good markets contribute to a double-barreled effect, where cash bonuses get bigger and stock bonuses appreciate, so packages for some will be much larger.