CCO Stands for "Career Changing Opportunity" - February 2008 Print E-mail
Written by Jay Keeshan   

During 2007 MPI completed its second annual survey of Chief Compliance Officer Compensation and Organizational Practices. This Bulletin discusses some of the findings with regard to the career path of the CCO.  The overwhelming finding is that the CCO is rapidly becoming a profession in itself, with advancement opportunities coming in the form of larger compliance roles, such as Global Head of Compliance, or as CCO at a larger fund complex.

We found that CCOs can be divided into three categories: (1) contract CCOs -- essentially either freelance individuals or employees of corporations specifically set up to provide compliance services, (2) professional CCOs who are on the advisor and/or board’s payroll but have no intent of rejoining the line operation of their companies, and (3) career company employees who are currently, and perhaps temporarily, serving as CCO.

The findings of the 2007 Survey differ for each of these groups, as does the form and amount of compensation.

CCO Type
Contract  Professional  Career 
Base   Highest  High  Normal
Bonus  None  Normal  High
Equity  None  Limited  Highest

Each category is discussed below.
1. Contract CCOs

 Contract CCOs exist mainly in smaller fund families. They are appointed because the position requires a specialized skill set which is expensive to attract and retain. Service providers which compete for this business typically charge a flat fee which depends on the complexity and size of the fund group. Larger fund groups typically prefer not to use this model because the service provider does not have the detailed knowledge of the accounting, processing and trading systems which are imbedded in the fund family’s operations. Some of the companies which specialize in providing transfer agency, fund accounting and administration services also provide CCO services through a separate division. While this configuration works for some smaller fund families, the independent directors should feel confident that a strict Chinese wall is maintained.  Contract CCOs typically work solely for the funds.
2. Professional CCOs

The MPI survey data clearly indicates that the role of CCO is rapidly becoming a profession in itself and that this category of CCO is growing. Executives who become CCOs might recognize the position as a “Career Changing Opportunity” rather than a stepping stone to a senior line position.

As a result, we found that the base compensation is higher than that of an executive at the same salary grade. We also found that the bonus, while substantial, does not approach that of a senior marketing executive or a portfolio manager. We found that top management of investment management companies greatly value the functions that the CCO performs, but recognize that they are unlikely to be revenue producing. Therefore it is rare to see any type of long term incentive paid to CCOs in this category. 

There is an important exception. Many investment advisory companies sell their services on a sub-adviser basis. In order to secure this important and often very profitable business, a potential vendor has to demonstrate all manner of accounting, risk control, trading and compliance capability. As a result some CCOs have been able to prove to their employers that they are indeed part of the revenue chain, as opposed to just being an expense center. Professional CCOs may work for either the funds alone or both the funds and the advisor.  
3. Company Career CCOs

 A career CCO by our definition is one where the current compliance assignment is just one of many along a long career path. In a few cases a CCO assignment is seen as perfect perch from which to understand the entire operation of a mutual fund company, not dissimilar to an Internal Auditor, Budget Director or Corporate Controller.

 In these cases, the form and amount of CCO compensation is similar to other up and coming executives. Relative to the other two types discussed above, this means that the base pay tends to be at grade level with a sizable bonus pool. Furthermore this type of CCO is likely to receive some sort of longer term incentive, usually an equity kicker such as deferred or restricted stock. Of course, such an arrangement has to be carefully constructed to avoid conflicting with the SEC’s rules for independence.  Career CCOs usually work for both the funds and the advisor.

 MPI will conduct its Third Annual Survey of CCO Compensation and Organizational Practices in the spring of 2008 to refine the hypotheses discussed in this Bulletin and update our base and bonus compensation benchmarks. These benchmarks were summarized in our Bulletin dated April 2007 which can be found on our website

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