Equity ownership and stock options continue to be a large part of the total compensation package received by executives at asset management firms, according to the latest Pensions & Investments salary survey.
The investment management industry seems to be following the worldwide trend of de-emphasizing salary in favor of incentives such as bonuses and equity ownership, said Robin Ferracone, president and chief operating officer of SCA Consulting LLC, Los Angeles. SCA helps U.S. companies design executive compensation schemes and measure performance.
P&I polled 251 employees of investment management firms about their total compensation in 1998, including base salaries, bonuses and incentive compensation.
The firms fell into one of five categories: independent investment advisers, banks, insurance companies, investment bank/brokerage houses and mutual fund companies.
Of the respondents, 38.6% are chief executive officers and 16.7% are chief investment officers, although in smaller firms the same person often holds both positions. Also, 19.5% of respondents are portfolio managers, 23.1% are marketing directors and 1.6% are securities analysts.
Because of differences in the size of firms responding, the results of the 1996 and 1998 surveys are not comparable. The median size of firms responding to this year's survey had $2.4 billion in total assets under management; the median firm in the 1996 survey had $4.2 billion under management.
The average total compensation for chief executive officers nationwide was $643,292 in 1998. Not surprisingly, firm size matters. The highest average CEO total compensation was for firms with more than $10 billion under management and the lowest average was in firms with less than $100 million.
Bank CEOs had the highest average total compensation, $775,250, followed by CEOs at insurance companies with $670,143. The lowest was the $420,000 total compensation paid on average at investment bank/brokerage companies. Independent investment management firms ranked third, with $646,276 in average total compensation.
Insurance company CEOs had the highest average base salary, at $292,125, compared with the low of $186,250 base salary for investment bank/brokerage CEOs.
CIOs at independent investment firms made the highest average total compensation but only the third-highest average base salary, with $432,133 and $202,333, respectively. They were followed closely by CIOs at insurance companies with $411,429 in average total compensation and $213,000 base.
Investment bank/brokerage CIOs had the highest average base salary, $255,000, but were No. 3 in terms of average total compensation, $375,000.
The lowest CIO average salaries were at mutual funds, which averaged $160,000 total and $110,000 base salaries.
Also, the highest CIO average total compensation was $805,286 in firms with more than $10 billion under management, according to the survey. CIOs at firms with less than $250 million made the lowest average total compensation, $120,000.
Leaders at smaller firms are more likely to have equity and stock options in lieu of salary and bonuses, said Kathryn Steele, director of growth and competitive strategies at Investment Counseling Inc., a business strategy adviser in West Conshohocken, Pa.
Eighty-five percent of CEOs have equity stakes in their firms, compared with 54% of CIOs, 47% of portfolio managers and 31% of marketing directors, according to the survey.
In addition, 12% of CEOs reported having stock options and 3% had restricted stock grants; in contrast, 33% of CIOs had stock options and 12% had restricted stock.
Bonuses continued to make up the lion's share of total compensation, sometimes making up two-thirds of average total pay packages. For example, the base salary for CEOs at firms with more than $10 billion in assets was $288,333 but the total package weighed in at $908,625.
CEOs and equity
Only 14% of CEOs said they didn't receive bonuses in 1998. Twelve percent of CIOs got no bonuses in 1998. Only 6% of responding portfolio managers and 11% of marketing directors said they received no bonuses in 1998.
"CEOs tend to take equity because it defers the tax and saves cash for the bonus pool," Ms. Steele said. "They are making their money in the equity they hold."
Seventy-four percent of CEOs said their bonuses were tied to profitability of the company, compared with 64% of CIOs, 47% of portfolio managers and 38% of marketing directors.
Only 15% of CEOs said their bonuses were tied to investment performance, compared with 45% of CIOs and 57% of portfolio managers. Only 7% of marketing directors had bonuses tied to investment performance.
However, 53% of marketing directors said their bonuses were based on new business, compared with 29% of portfolio managers, 10% of CIOs and 8% of CEOs.
Some of the comments written in by respondents regarding bonus criteria included "whim of owners," "CEO decides" and "cost control."
Portfolio managers can, on average, make almost as much total compensation at a firm that manages less than $250 million in assets as at a firm with more than $10 billion, according to the survey.
The average compensation for portfolio managers at firms with more than $10 billion is $230,857 total and $153,300 base, compared with $205,667 total and $108,750 base for a portfolio manager at a firm with $249.9 million to $100 million, according to the survey.
The highest average total portfolio manager compensation was $250,000 at mutual fund companies. The highest average base salary for portfolio managers was $275,000 for those employed by investment banks and brokerages.
Marketing directors at mutual fund firms and investment bank/brokerage companies make higher average total and base salaries than their peers. The smallest total and base compensation averages are at insurance companies and independent investment management firms.
For instance, the average marketing director at an investment bank made $575,000 in total compensation, $178,333 base, compared with an insurance company's marketing director's $220,600 in total compensation and $117,500 base.
Marketing directors made the highest total compensation at firms with 11 to 24 products, $406,385, compared with $331,750 at firms with more than 25 products. The lowest total compensation, on average, for a marketing director was at a firm with only one product, $83,667.
Does experience count?
The survey indicates years of experience don't always pay in cash.
Forty percent of the survey respondents had more than 11 years of experience in investment management or in a related business; 47% had more than 20 years in the business.
For CEOs, salaries grew with length of experience. A CEO with more than 20 years on average got total compensation of $719,451 and a base of $260,298. A CEO with 11 to 19 years received an average of $569,672 in total compensation and $223,219 base. Six to 10 years of experience provides a CEO with $250,000 in total compensation and a $150,000 base salary.
CIO and portfolio manager salaries didn't improve much with time on the job, according to the survey. CIOs with six to 10 years experience averaged $300,000 total and $250,000 base, compared with a $328,971 total and $183,029 base for a CIO with 11 to 19 years of experience. A CIO with more than 20 years of experience averages total compensation of $393,238 and a base salary of $177,783.
The highest average portfolio manager compensation was for those with 11 to 19 years experience, with $250,550 total and a $154,886 base, according to the survey. Portfolio managers with more than 20 years of experience reported receiving only $196,361 in total compensation, and a $137,542 base salary. Portfolio managers with six to 10 years' experience received on average $118,688 in total compensation and $89,000 base.
Who they are
Sixty-seven percent of respondents work for independent investment advisory firms; 17% for banks; 10%, insurance companies; 4%, investment bank/brokerage; and 2% for mutual funds companies.
Seventy-two percent of respondents work in firms that manage both institutional and retail assets.
Twenty-one percent of survey respondents work for firms with more than $10 billion under management, 13% for firms with $5 billion to $9.9 billion, 26% for firms that manage $1 billion to $4.9 billion, 16% for firms with $500 million to $999.9 million under management, while 24% work for firms with less than $500 million.
The majority of respondents offer between two and five investment products.
Survey respondents were predominantly located in the Northeast, although 22% are in the central part of the country, 17% responded from the West and 17% from the South.
Geographic location is not much of a compensation issue at the executive level, said SCA's Ms. Ferracone.
"There are exceptions, of course, but as a rule it's a national market," she said.