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.

In recent years the topic of securities lending has become an important issue for mutual fund directors, in large part due to advances in technology, which have made the lending process more streamlined and allowed significant profits to be earned. These, in turn, mean higher returns for fund shareholders.  In fact the total profits earned by US mutual funds from securities lending in 2006 was $760 million, up from $510 million in 2005.  Whether a fund is currently lending its shareholdings or not, it is important for fund directors to stay current with this rapidly changing element of the fund industry.

MPI has recently completed its third annual survey of Chief Compliance Officer Compensation and Organizational Practices. This Bulletin is a summary of the findings and is based on the submissions of 64 fund families following 46 which reported last year.

We analyzed the data by plotting the total compensation against assets under management. We found that CCO compensation increased as size increases but that economies of scale exist (i.e. a CCO is paid more for the first $1 billion of assets than the second $ billion and so on). We found that the highest paid CCOs approach $1 million per year and very few are paid less than $150,000. When we compared the same CCOs year over year we found an average pay increase of 9%.