Salaries for investment professionals are on an upswing across the board, with managers of all kinds continuing to draw a most of their total compensation from bonuses and incentives paid over their base pay, according to a Pensions & Investments survey.
Chief executive officers received a mean total compensation of $662,196 and median total compensation of $300,000 in 1996, including bonuses, incentives and other compensation, according to the P&I survey. By comparison, the 1994 mean compensation package added up to $468,513 and the median total package was $363,000 (P&I, Oct. 16, 1995).
Chief investment officers were next, with a mean package of $470,941 and a median of $322,500; 1994's figures were nearly half those totals - $241,664 and $175,000, respectively. CIOs were followed by portfolio managers, with a mean total compensation of $349,245 and median of $195,000, compared with a mean of $218,105 and median of $132,000 in 1994. Marketing directors earned a mean total compensation package of $271,923 and a median of $182,500, compared with 1994's mean of $208,151 and median of $141,000.
The survey polled 278 employees of money management firms on total compensation for 1996, including base salaries, bonuses or incentive compensation and other compensation such as equity, profit sharing and fringe benefits. Overall, 54.9% of survey respondents were employees of independent investment firms, 24.2% worked for bank-owned money managers, 9.9% worked for insurance companies, and 11% other types of firms.
Of those respondents, 24.9% were chief executive officers, 13.2% were chief investment officers, 35.2% were portfolio managers and 26.7% were marketing directors. By comparison, 1995's sample of 186 money managers was 25% CEOs, 17% CIOs, 30% portfolio managers and 28% marketing directors.
Total compensation fluctuated widely among survey respondents, depending on job title, type of firm, number of products offered and location. The CEO's total compensation ranged from $60,000 to $6 million, still higher than the previous survey's extremes of $50,000 and $4 million. Meanwhile, portfolio managers' 1996 compensation package ranged from $37,500 to $4.3 million, also higher than 1994's extremes of $21,000 and $1.65 million.
The mean base salary for CEOs was $254,477 and the median base salary was $213,000, compared with a mean salary of $181,459 and median salary of $165,000 in 1994. CIOs received a mean base salary of $205,111 and median of $160,000, compared with a mean of $143,300 and median of $120,000 in 1994; portfolio managers earned a mean of $156,344 and median of $115,750, compared with a respective $110,926 and $90,000; marketing directors received a mean of $119,230 and a median of $110,000, compared with a mean of $101,186 and a median of $100,000 in 1994.
Not surprisingly, base salaries grew with experience. Average CEO salaries ranged from $107,000 chief executives with less than 10 years experience to $294,667 for chiefs with 20 years or more; for CIOs, the averages range from $66,500 for a professional with less than 10 years to $202,826 for someone with more than 20; portfolio manager salaries averaged $80,190 for those with less than 10 years to $185,065 after 20 years; marketing directors' average salaries ranged from $94,981 for marketers with less than 10 years to $162,643 for those with more than 20.
Base salaries were only a small portion of total compensation, however. Bonuses and other compensation added a substantial amount to paychecks on average. More than 90% of respondents noted they receive a bonus as part of their compensation, including 86.8% of CEOs, 91.4% of CIOs, 91.5% of portfolio managers and 91.8% of marketing directors.
The lower percentage of CEOs receiving bonuses is probably a factor of the high ratio of independent advisers included in the survey. In smaller independent firms, CEOs and CIOs tend to be founders and principals, so they benefit from the profits and equity of the firm and therefore need no bonus.
The average equity stake held by CEOs surveyed was 42.1%, while CIOs owned an average of 14.9% of their firms, portfolio managers held 3.7% and marketing directors 4.8% on average.
The extent of bonuses among CIOs and portfolio managers is also a factor of the competition for investment talent, said Michael D. Martinolich, president of Tennyson Advisors, a New York executive recruiting firm specializing in investment management.
"You've got to keep the good portfolio managers pleased with regard to their compensation arrangement .*.*. because there are so many firms in this business today - small and medium firms - willing and able to come up with very competitive compensation arrangements to lure some of the more seasoned individuals."
The way of determining the bonus varies widely with the title. Chief executives, CIOs and portfolio managers were most often rewarded on the firm's profitability, but performance was a close second among the portfolio managers. While profitability was the key factor for 73.5% of CEOs, 66.7% of CIOs and 50% of portfolio managers, performance was the determinant for 13.2% of CEOs, 38.9% of CIOs and 41.7% of portfolio managers. By contrast, marketing directors were most often rewarded for new business, followed far behind by performance, 57.5% vs. 35.6%.
The concentration on profitability at all levels, even among portfolio managers, shows firms are putting their money behind the concept of a firm as a team and profit as the end result of all their activities, said the experts. The marketers' new business generation, the CIOs and portfolio managers' investment performance and the CEOs business management all go to the bottom line.
"You have to pay bonuses out of something. The only thing you can pay them out of is profits. . . . If you put all the different things together, it gets translated into firm profitability," said Richard S. Lannamann, managing director of executive consultants Russell Reynolds Associates Inc., New York.
Among institutional firms in particular, funds are run on a team basis, said Mr. Martinolich. So if the investment team does well, the company will continue to bring assets and profits will grow, he said.
As in real estate, location tended to affect the take. Salaries for all positions except the chief executive officer tended to be higher in the Northeast and West and lower across the southern and central regions.
The median base salary for a CEO was $225,000 in the central region, $222,500 in the Northeast, $200,000 in the South and $190,000 in the West. CIO median base salaries were $205,000 in the Northeast, $190,000 in the West, $140,000 in the central region and $135,000 in the South. Portfolio managers were paid a median base salary of $150,000 in the Northeast, $135,000 in the West, $88,600 in the South and $82,300 in the central states. Marketing directors received median salaries of $125,000 in the Northeast, $110,000 in the West, $100,000 in the central states and $60,000 in the South.
Regional variations are a function of the higher cost of living in certain areas, such as New York, Boston Los Angeles and San Francisco. While most professionals expect the base salary to be a fraction of their earnings, they do require a higher floor to relocate to areas where the cost of living will be higher. Cost of living always becomes a factor when trying to relocate investment professionals, said Mr. Lannamann.
Cost of living was seen as a factor in the past, but more recently competition has begun to level out the numbers across the country, said Gregory A. Hazlett, director of research of Investment Counseling Inc., West Conshohocken, Pa. He noted executives from a firm in Wisconsin that are paying portfolio managers and analysts salaries competitive with New York firms to keep quality people.
Additionally, the type of firm influenced total compensation at all levels, with executives at investment management subsidiaries of banks and brokerage firms having the largest total compensation packages. Chief executives at investment bank subsidiaries received an average compensation package of $1.24 million, followed by CEOs of bank subsidiaries, who earned $1 million in salary and bonuses. CEOS of independent investment advisers and insurance companies were far behind, with packages of $576,402 and $550,000, respectively.
Chief investment officers at investment bank subsidiaries were highest paid, with average compensation of $936,667; followed by CIOs at independent advisers, who earned $683,750, and insurance company and bank subsidiary CIOs, who earned $595,167 and $244,765, respectively. Portfolio managers at insurance companies were the best paid, with average compensation of $540,778, followed by portfolio managers of investment bank subsidiaries with $450,000. Banks, independent advisers and mutual fund companies paid lowest, offering portfolio managers total compensation packages of $356,829, $249,559 and $200,000, respectively.
Investment Counseling's findings in that regard are different, said Mr. Hazlett. The firm's recent study of money management business practices found independent firms paid higher compensation, while affiliated firms - a category including investment bank, insurance company, bank and holding company subsidiaries - were lower (P&I, Aug. 19, 1996).
But there are several reasons that could explain the higher compensation at investment banks and brokers, said the experts. They noted it could be a reflection of their parents' fortunes rather than a function of their own success.
Large Wall Street firms can pay more than the average investment counseling firm or bank because they are sizable firms, said Mr. Lannamann.
Mr. Martinolich added that independent firms can afford to pay lower compensation on the short term because they are still privately held and can "hold out a carrot or an opportunity to become an equity owner."
Some fluctuations by type of firm can also be explained by acquisitions in which an independent adviser was bought out: acquisitions such as the purchases of Hotchkis & Wiley by Merrill Lynch & Co. or Miller Anderson & Sherrerd and Van Kampen American Capital by Morgan Stanley Group. The firm's principals - who were also the CEOs, and sometimes the CIOs - have to be compensated for their equity, and younger executives have to be given an incentive to stay.
"A partner is rewarded in this buy-out and you have folks 'on the bubble,' who have not yet made a partner. After the sale, typically these good folks are locked in a short-term contract, but clearly they re-evaluate what the opportunity now becomes," said Mr. Martinolich. High compensation is one way to retain them, now that equity participation is not available, he said.
The trend with marketers was completely different, however, with those at independent managers being highest paid, with total compensation of $325,399. Banks paid marketers total compensation of $201,364; followed by insurance company subsidiaries, with $194,800; mutual funds, with $175,000; and investment banks, with $159,600.
The lower compensation among investment banks and mutual funds is a function of culture and distribution, said the experts.
"The people who run banks and insurance companies may not be as appreciative of the culture or the mindset of a good marketing person by virtue of the historic culture of banks and insurance companies," Mr. Martinolich said. That's changing, but not enough to bring them up to par with institutional marketers, he said.
On the other hand, mutual fund companies distribute much of their product through direct sales and broker channels, so senior, and therefore highly-paid, marketers are not that important.
"The direct and brokerage distribution for funds doesn't require such highly compensated marketing professionals. They're not interfacing with the clients in the same way and generating business as institutional marketers," said Mr. Hazlett.
Also, many marketers in those companies are converts from brokerage sales who are used to commission work and don't have expectations as high as institutional sales and marketing professionals, said Mr. Lannamann.
The relationship between compensation and the firms' product offerings see-sawed almost in a bell curve fashion, peaking once the firm grew to 10 or more products. Chief executive compensation grew from an average of $198,333 at one-product firms to $353,500 on average among firms with 10 to 24 products and dropping to $170,000 at firms with more than 25 products; marketer compensation followed the same pattern, starting at $84,250 among one-product firms, peaking at $140,154 among firms with 10 to 24 and dropping to $83,750 among firms with more than 25.
Chief investment officers peaked sooner, starting at $118,000 at one-product firms, peaking at $222,104 at firms with 2-10 and dropping to $190,600 among firms with 10 to 24 and $182,375 among firms with 25 or more.
Portfolio managers started at $161,000 at one-product firms, rising to $162,954 at firms with 2-10 and dropping to $133,460 among firms with 10 to 24 before rising again to $159,000 among firms with 25 or more.
The reasons for those disparities weren't quite clear, but some possible theories include competition and variety of product.
The marketing job is less difficult when there is a variety of product, because the marketer will always find something to show his prospects, said Mr. Lannamann.
"You always have an arrow in your quiver, you always have a product you can show the client," he said. "If you have a one-product firm, you have to work harder."
At the same time, the very large firms hire marketers to sell only some of their products, while two- and three-product shops will have one marketer selling all, noted Mr. Hazlett. Those marketers who are selling all the products tend to get a better payout because it's based on all the assets the firm brings in, while the marketers in multiproduct firms have their fortunes tied to specific products, he said.
Competition also affects this, said Mr. Hazlett. Compensation will rise among the midtier firms because those growing firms will be more competitive in attracting talent than niche boutique players or the large multiproduct companies, he said.
With some slight fluctuations, total compensation rose along with firm assets. Chief executives' compensation rose from an average of $242,857 at firms with less than $250 million to $899,480 at firms with more than $10 billion, CIOs earned $230,000 in firms with less than $250 million and $509,885 at firms with more than $10 billion; portfolio managers rose from $106,500 at firms with less than $250 million to $381,714 at firms with more than $10 billion and marketing directors' compensation rose from $150,000 to $305,182.