Board Compensation
Fund Director Compensation Reflects Industry in 2011 - April 2012 Print E-mail
Written by By Jay Keeshan and C. Meyrick Payne of Management Practice, Inc.   

     Management Practice Inc. (MPI) has just completed its 19th annual “Survey of Mutual Fund Director/Trustee Compensation and Governance Practices”, with data covering 1,833 directors from 343 fund families. Full reports and specific board compensation comparisons are available from MPI.

     While experiencing ever-growing challenges and responsibilities, fund directors overall appear to have held their pay to modest increases.  Year-over-year (equivalent director) compensation increased an average of 3.2% in 2011 over 2010 levels.   Boards at larger fund families saw slightly higher increases of approximately 3.7%.

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Industry Dynamics Drive Fund Board Compensation Higher; 5% at Larger Fund Complexes - April 2011 Print E-mail
Written by C. Meyrick Payne, Jay Keeshan and Sara Yerkey of Management Practice, Inc.   

     Management Practice Inc. (MPI) has just completed its 18th annual “Survey of Mutual Fund Director/Trustee Compensation and Governance Practices”, with data covering 1,971 directors from 374 fund families. Full reports and specific board compensation comparisons are available from MPI.

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Mergers and Meetings Drive Moderate Growth for Fund Director Pay in 2009 Print E-mail
Written by C. Meyrick Payne, Jay Keeshan and Sara Yerkey of Management Practice, Inc.   

     Management Practice Inc. (MPI) has just completed its seventeenth annual “Survey of Mutual Fund Director/Trustee Compensation and Governance Practices”, with data covering 1,902 directors from 374 fund families. Copies of, and specific comparisons to, the survey detail are available from MPI.

     Year-over-year board compensation (same directors year over year) increased an average of 7.1% in 2009 over 2008 levels.   While a few boards took pay cuts over the past couple of years (often by opting not to take pay for selected meetings), most kept their pay roughly flat in 2008.  2009 saw a return toward normalcy in the markets as the year progressed, and most boards reverted to their normal pattern of increases.  This had the effect of increasing pay for many due to additional meetings necessitated by the financial meltdown.   Furthermore, some boards were affected by fund mergers and took on a significant amount of additional funds or assets; accordingly, a few took measured pay increases.

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Performance Fees for Fund Directors: Perhaps It Is Time? - February 2010 Print E-mail
Written by C. Meyrick Payne   

Every now and then fund directors have a serious discussion about the merits of performance fees for the fund's advisor. Perhaps the debate is incomplete and they should also discuss what it would mean if they decided to integrate a performance fee into their own compensation. Without taking a position on the relative advantages and disadvantages of this proposition, this bulletin explores this concept.

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Comparing the "Degree of Difficulty": A New Approach to Fund Director Compensation - January 2010 Print E-mail
Written by Jay Keeshan and C. Meyrick Payne   

In addition to the myriad duties mutual fund directors must carry out with regard to the funds they oversee, they are faced with the added burden of setting their own pay.  The demands of the job, including the expertise required and time involved, justify being paid fairly.  However the optics of being overpaid would not be perceived favorably by fund shareholders or the financial press.

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Fund Director Compensation Virtually Flat in 2008 - April 2009 Print E-mail
Written by By C. Meyrick Payne and Jay Keeshan of Management Practice, Inc.   

Management Practice Inc. (MPI) has just completed its sixteenth annual “Survey of Mutual Fund Director/Trustee Compensation and Governance Practices”, with data covering 2,140 directors from 411 fund families. Copies of, and specific comparisons to, the survey detail are available from MPI.

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More Work, Fewer Assets; Impact on Director and CCO Compensation - January 2009 Print E-mail
Written by Jay Keeshan and Meyrick Payne, Management Practice, Inc.   

The last quarter of 2008 saw unprecedented upheaval in the financial markets.  New revelations of crises and scandals broke almost weekly; the most recent being the colossal Madoff investor fraud, which involved an investment offering that turned out to be a Ponzi scheme.  Standing relatively untarnished amidst all of this has been the mutual fund industry.  Apart from a few isolated incidents, the overwhelming majority of the industry has performed as intended, providing diversification, transparency, and liquidity to shareholders.  While performance and flows are down, and downsizing -- along with the rest of the industry and economy -- will likely take place, it is clear that the mutual fund industry will survive this crisis and, in our view, successfully emerge as a solid model of safe, effective, and well-governed money management.
 
In this environment, independent mutual fund directors and the regulations that empower them have played a significant role in the industry’s success.   Most directors have faced a substantially increased workload in the form of additional meetings and materials to review.  Many have been presented with new issues to understand and manage, including ARPS, CMOs, and CDSs, and the once relatively routine review of money market funds has topped many boards’ agendas.  Some directors may also feel increased legal exposure. 

Presented with the task of setting their own compensation, directors must resolve the dilemma of ensuring that they are fairly paid.  In addition, they are responsible for setting the pay of their Chief Compliance Officer, who faces similar new challenges. 

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Measuring the Cost and Effectiveness of Fund Directors - July 2008 Print E-mail
Written by C. Meyrick Payne and Jay Keeshan   

C. Meyrick Payne and Jay Keeshan, Management Practice, Inc (MPI).  Data for this Bulletin is principally drawn from the  MPI Annual Survey of Trustee Compensation and Governance Practices.

Independent mutual fund directors, who have the authority to annually review and renew the investment advisory contract, have proven to be a cost efficient and effective way to govern the collective investments of millions of Americans. Occasionally this statement is called into question. In the paragraphs which follow, we highlight four ways to quantify the cost efficiency and market effectiveness of independent mutual fund directors.

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Trustee Compensation Growth Slows; Specialized Expertise Still in Demand - April 2008 Print E-mail
Written by C. Meyrick Payne and Jay Keeshan   

Management Practice Inc. (MPI) has just completed its fifteenth annual Survey of Mutual Fund Director Compensation and Governance Practices, with data covering 2,158 directors from 406 fund families. Copies of, and specific comparisons to, the survey detail are available.

Year over year “same director” compensation increased an average of 7.3% last year, a slower growth rate after more than five years of double digit increases since the passage of Sarbanes-Oxley and the fund scandals at the start of the decade.

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The E3+O Process: How to Set Fund Director Compensation - January 2007 Print E-mail
Written by C. Meyrick Payne and Jay Keeshan   

Mutual fund boards typically evaluate their compensation annually or bi-annually, often using the traditional method of comparing their compensation to that of a peer group of directors with similar governance responsibilities; that is, similar assets under management and number of funds governed. They will often try to set their pay at the 50th percentile—or perhaps higher, say 75%—of the peer group pay range. This approach potentially facilitates a “Lake Wobegone” upward spiral effect, in which all mutual fund directors are “above average” and pay levels continue to ratchet up on their own momentum.
Whether these increases are merited or not, this “outside-in” method of setting director pay may not truly reflect a fair value for the job. A more solid and rational technique would involve evaluating the various aspects and requirements of the job to determine what rate of pay would be appropriate to attract, motivate, and retain appropriate and competent directors. This requires more of an “inside out” approach. The E3 + O methodology described below examines the effort, expertise, exposure, as well as an additional element—opportunity cost—involved with serving as a mutual fund director.

 

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More Meetings, More Pay:Fund Directorsí Compensation Increases 13 % as Workload Grows - April 2005 Print E-mail
Written by C. Meyrick Payne   

For the second year in a row, the increase in fund director compensation was
driven more by the number of meetings than by the retainer. After a robust increase of
8% in the first half of 2004, the pace of pay raises for independent mutual fund
trustees/directors slackened slightly in the second half but still wound up the year with an
annual increase of approximately 13%. This second full year of Sarbanes-Oxley impact,
along with continued fund regulatory reform, saw a continued increase in the
responsibilities of evermore influential fund directors, resulting in a two-year (’03-’04)
compensation gain of 27%.
Directors are finding the job requires more and more time to stay on top of
governance issues. The increase in total compensation is 72% attributable to additional
meetings and more paid committee work. Only 28% of the increase is attributable to
increased board retainer. The median number of board meetings has risen from just under
5 in 2003 to nearly 6 in 2004 reflecting the increased complexity and time consuming
nature of board work. The typical board meeting lasts 6 or more hours, with many board
meetings spanning 2 days.

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