SAN FRANCISCO — Incentives played a bigger role in the total compensation of portfolio managers and other investment professionals since 2002, according to pension consultant Callan Associates.
A Callan survey released March 18 found that in 2005-2006, incentives — cash bonuses, commissions, profit distributions and equity —made up 42% of portfolio managers’ total compensation, compared with 35% in the 2001-2002 survey. CEOs saw similar increases, 48% in 2005-2006 vs. 43% in 2001-2002, as did CIOs (52% vs. 44%), consultant professionals (44% vs. 37%) and sales professionals (52% vs. 44%).
Inga Sweet, senior vice president and manager of the published research group at Callan, said the increase was “due in large part to the profitability of the firms and favorable market conditions” during the 2005-2006 time period. Money management firms also were trying to retain professionals by offering more incentives, she said.
“There’s been a big increase in variable components of pay,” Ms. Sweet said. “Collectively, the organizations are implementing incentive strategies to retain these professionals.”
One incentive that jumped significantly was portfolio managers’ share of equity ownership, Ms. Sweet noted. The survey found that equity in the company — the ownership share — offered to portfolio managers as part of their compensation increased to an average of 10% in 2005-2006 from 5% in 2001-2002.
The average total compensation for portfolio managers in 2006 was $628,000 vs. $437,000 in 2002. For CEOs, average total compensation was unchanged at $1.2 million. Callan did not survey all the same firms in each survey, which could explain the lack of change, Ms. Sweet said.
The survey also looked at how average compensation for financial professionals changed between 2005 and 2006. Portfolio managers made 23% more in 2006 vs. 2005, while client service professional and COOs made 18% more, and consultant relations professionals and chief compliance officers saw a 13% increase.Not surprisingly, firm size made a difference in pay for portfolio managers. Portfolio managers that worked for firms managing more than $10 billion had an average total compensation of $935,000 in 2006. Portfolio managers at firms with less than $10 billion but more than $1 billion made an average of $435,000. Portfolio managers at firms with less than $1 billion made an average of $281,000.
Callan surveyed 120 investment management firms of various sizes to compile the report. Collectively, the firms managed nearly $5 trillion. More than three-quarters of the firms were classified as independent investment counselors. The survey is conducted over two years every four to five years.
Contact Jennifer Byrd at [email protected]
