Investment management professionals are padding their own bottom lines this year, taking home 17% more than they were in 2003, as investment returns improve.
A new survey of investment industry compensation found that the median U.S. pay for investment management professionals in 2005 is $170,000, which includes a $113,000 base, a $35,000 cash bonus and $5,000 in non-cash compensation. The figures were compiled by Russell Reynolds Associates, a recruiting firm in New York, and the CFA Institute, Charlottesville, Va., which represents portfolio managers, research analysts, chief financial officers and other investment professionals worldwide.
Overall, salaries are rising in tandem with assets, revenue and profit performance as the stock market shows more signs of life, the survey of 10,655 CFA members found. About 70% of those surveyed said their firm's profitability had the most significant impact on their bonuses. Portfolio managers' individual investment performance also is closely tied to determining his or her extra windfall, with 72% saying it was a factor in determining their bonuses.
Overall, 2005 compensation is 7% higher than 2003 — when the survey was last conducted — but 7% lower than the heady days of 2001, the survey said. Still, the presence of "multiyear guarantees" and "aggressive counter-offers" today suggests a solid rebound, said Deborah Brown, a managing director with Russell Reynolds' investment management practice. "There are some indicators in the market that tell us we're back to a very competitive marketplace for talent."
Median base salary, cash bonus and total cash compensation all increased from 2003, the last year the survey was conducted. Median non-cash compensation — such as stock options or housing and travel allowances — was the only portion of the average pay package to decrease, hitting $5,000 this year from $10,000 in 1999, 2001 and 2003.
Chief operating officers and chief administrative officers are seeing the biggest pay increases since the 2003 survey, making $320,000 this year, up from $200,000 in 2003 and $260,000 in 2001. COOs and CAOs are in greater demand and commanding more money because they often wear the increasingly important regulatory hat in addition to other responsibilities, Ms. Brown said.
Among chief investment officers, the median compensation in 2005 is $225,000, an increase of 12.5% from 2003. A head of fixed income will receive an average $300,000 this year, an increase from $240,000 in 2003, but consistent with 2001. Global/international equity portfolio managers are also taking home fatter checks: $290,500 in 2005, up from $240,500 in 2003.
In larger organizations, (defined as those with assets under management or revenues of $5 billion or more), the survey said investment management professionals at hedge funds and mutual management firms are the most highly compensated, followed by investment counseling/investment management firms and securities brokers/dealers.
Hedge fund and mutual fund professionals in the top pay decile for 2005 are taking home an average of $1.4 million and $726,965, respectively. Investment counseling and management executives in the top decile will receive $660,000 this year, while securities brokers and dealers will get $745,000. Pension plan sponsor and endowment/foundation professionals in the top pay decile will receive $395,000 this year.
Are the 10,655 investment management professionals surveyed content with their level of pay? More than half said they feel they were "fairly compensated" in 2004, and 46% said they feel they were underpaid. Two percent said they were overpaid last year when compared with their peer group.