The intense war for talent in the money management industry has given individual money managers the upper hand in determining salaries and all-important perks such as equity stakes, guaranteed performance-based bonuses, hedge fund management with a cut of incentive fees, casual dress and longer hours for employee gyms.
The results of Pensions & Investments' annual money manager salary survey show how strongly bonuses, equity stakes and other incentives contribute to the total compensation of the 213 money managers polled.
The vast majority -- 85% -- of chief executive officers polled said they have an equity ownership stake in their business, compared with 61% of chief investment officers, 29% of portfolio managers, 47% of marketing directors, 20% of securities analysts and 42% of other categories of investment professional.
Eighty-three percent of CEOs received 1999 bonuses, putting them behind the 97% of CIOs, 88% of portfolio managers, 95% of marketing directors and 90% of money management company employees in other categories who did receive bonuses. Just 80% of securities analysts received bonuses for the year.
Life is not all that cushy for money management company employees. In fact, while 22% of portfolio managers, 20% of marketing directors and 23% of securities analysts said they receive restricted stock grants, just 11% of CEOs and 15% of CIOs do.
Of the people polled by P&I, 35% described themselves as CEOs; 15% as chief investment officers; 20% as portfolio managers; 18% as marketing directors; 5% as securities analysts; and 7% had other job titles.
Just over half, 56%, of respondents work at independent investment advisers; 12% work at banks; 14% are from insurance companies; 6% work for investment banks/brokerages; 6% work for mutual fund companies; and 6% are from other categories of money managers.
Plenty of jobs
The competitive market for good money managers means that "investment managers have a pretty strong hand and really do call the shots, because if they are unhappy, they can just walk away and find another position at a company that will meet their needs," said Jim Bowen, principal, Eager Manager Advisory Services, Louisville, Ky.
In fact, Mr. Bowen and colleagues at vendor Eager have been busy over the past year helping companies create stock ownership plans for employees and spreading that ownership to a wider circle of employees. "The desire of many money management employees is to use equity stakes as a way to create long-term wealth, rather than short-term cash rewards," Mr. Bowen said.
Eager surveyed money management companies for a proprietary study earlier this year and found that a surprisingly high number were designing stock ownership plans and either expected to introduce such plans or had already introduced them.
Mr. Bowen said that he has helped four money management subsidiaries of larger public companies create stock just for employees of the subsidiary. The argument of subsidiary employees, he said, is that their own performance should be reflected in the stock they are granted, not the performance of the parent company, which may not be doing as well as its asset management unit. Mr. Bowen said he could not identify the money managers he has worked with in designing such stock ownership plans.
At banks, adding equity participation has become more common than in previous years, said compensation specialist Jim Sillery, a senior consultant at Watson Wyatt Worldwide's Chicago office. Money management boutiques, on the other hand, are more likely to hand out cash bonuses than ownership stakes.
Mr. Sillery noted that money management base salaries have risen for all levels of investment professionals in order to make it much harder for competitors to lift out whole management teams. Investment professionals also are securing guaranteed bonuses in the first and second years of their contracts, as sort of deferred signing bonuses, a consequence of the escalating war for talent, Mr. Sillery said.
"There has been an evolution in the money management industry over the last 10 years which has accelerated over the last five years," he said. "It used to be that banks and other money managers always had more people than capital that could be used to foster growth. Now, there is far more capital than capable talent to help management companies toward rapid growth."
Hedge fund incentives
In-house hedge funds are among the latest concessions that money management companies are making to keep their best-performing portfolio managers happy, said Richard Lannaman, global head of the investment management practice at executive recruitment firm Russell Reynolds Associates Inc., New York.
"Companies are more willing to set up hedge funds and allow their best portfolio managers to share in the incentive fees in order to keep the stars from bolting to dot-coms or to set up their own hedge fund company," he said.
Money management companies also are offering more flexibility in base salaries, allowing portfolio managers more of a share of the revenue growth of the funds or strategies they manage, again to keep them from racing out the door to join Internet companies, Mr. Lannaman said.
Overall, Mr. Lannaman and other compensation specialists reported that hiring has become a much higher priority for investment management companies. "People realize that there is a war for talent and that they have to put more effort into it so they can be ready to make decisions much more quickly," Mr. Lannaman said. "There is definitely more willingness lately to make hiring decisions a lot faster than in the past. People have so many opportunities right now that money managers will lose out if they don't act fast. They aren't lowering their standards; they're just having to hire people much more quickly."
Money management companies are able -- just -- to keep their staffing levels where they should be, "but it's causing a lot of anxiety," said Mr. Sillery of Watson Wyatt.
All that anxiety has translated into very nice total compensation packages for a range of investment management professionals, according to P&I's poll. CEOs at banks enjoy an average base salary of $211,667 and the highest average total compensation for CEOs at $661,667. The average base salary for a CEO of an independent money management firm is $289,774, with average total compensation of $570,528.
Chief investment officers at insurance companies have the highest average base salary at $304,400, but the second highest average total compensation among their peers of $441,600. Independent money management CIOs have an average base salary of $241,786, with the highest average total compensation of $555,769. Bank CIOs are the least well-paid with an average base salary of $125,000 and average total compensation of $176,667.
Mutual fund portfolio managers have the highest average base salary -- $193,000 -- and average total compensation -- $341,500. Portfolio managers at independent managers follow, with average base salary of $150,765, and average total compensation of $231,824. Insurance company portfolio managers have the lowest average base salary of $121,143, but the second-highest average total compensation of $256,893. Portfolio managers at banks have average base pay of $133,333 and total compensation of $237,833.
CEOs at money management companies with more than $10 billion under management reported average total compensation of $1,062,500, more than their peers at smaller firms. Chief investment officers of the biggest tier of companies are even better paid than CEOs, with average total compensation of $1.15 million.
There is huge disparity in pay, however, for portfolio managers at companies managing more than $10 billion: Average total compensation for those who manage the money is just $379,059. That's less than the $395,333 average total compensation of marketing directors in that category.
But the best-paid marketing managers work at firms with between $5 billion and $9.9 billion under management, bringing home an average total compensation of $639,800.
The average total compensation of CEOs of managers with between $1 billion and $4.9 billion under management was $757,500; for companies managing between $500 million and $999 million, it was $386,429; for companies managing between $250 million and $499.9 million, it was $505,850; for managers managing between $100 million and $249.9 million, it was $359,000; and for companies managing less than $100 million, it was $242,410.
Portfolio managers working for companies with between $1 billion and $4.9 billion are better paid, with average total compensation of $329,000, than are their peers at firms with between $5 billion and $9.9 billion, who average $176,750.
Portfolio managers' average total compensation drops to $132,333 at companies with between $500 million and $999.9 million under management, and it dips to $101,000 at companies managing between $250 million and $499.9 million.
The highest-paid CEO, with a $4 million total compensation package, works in a money management company in the Northeastern United States. The lowest-paid CEO, with total compensation of $41,500, works for a company in the South. The mean total compensation package for a CEO across all regions is $612,620 and the median total compensation is $400,000.
The highest-paid chief investment officer, who brings home total compensation of $25 million, works for a company in the Central United States.
The lowest-paid CIO in P&I's survey, at $65,000 in total compensation, works for a company in the Northeast. The mean total compensation package for CIOs across all regions was $574,467; the median was $278,000.
The best-paid portfolio manager works for a company in the West and takes home total compensation of $1.3 million. The worst-paid, with total compensation of $50,000, works for a company in the Northeast. The mean total compensation for a portfolio manager across all regions was $277,396; the median was $200,000.
The best-rewarded marketing director, with total compensation of $5 million, works for a company in the Northeast. The least well-paid marketer, with total compensation of $75,000, also works for a company in the Northeast. The mean total compensation of marketing heads was $407,362; the median was $290,000.