CCO Compensation Varies Widely - April 2007 Print E-mail
Written by C. Meyrick Payne and Jay A. Keeshan   

Over the past several months, MPI has completed its second annual survey of Chief Compliance Officer Compensation and Organizational Practices. This bulletin is a summary of the findings about compensation and is based on the submissions of 46 fund CCOs.

We analyzed the data by plotting the base and total compensation against assets under management to provide a sense of how CCO compensation increases as size increases. We then fit a line of best fit through the 46 plot points to come up with an estimate of base and total compensation for multiple asset levels. We found that the line of best fit was logarithmic which means 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 also learned that the bonus, which is almost always based on how well the CCO completes the pre-agreed compliance plan, represents a larger portion of compensation at larger fund families. Up to $50 billion we found that the median bonus was 40% of base pay, whereas at over $60 billion and above the median bonus rose to 80% of base pay. The highest paid CCOs approach $1 million per year and very few are paid less than $150,000.

The total and base compensation for complexes with between $1 billion and $10 billion in assets under management looks as follows:

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This chart shows that for a complex with $5 billion in assets the median base compensation was about $130,000 with an expected bonus of 40% bringing total compensation to $182,000.

The range of compensation for these fund families was wide depending on many variables, such as geographic location, number of funds and portfolios, retail or institutional distribution, number of sub-advisers, and mix of insurance related products.

Perhaps the most important finding of our survey was that CCOs, while they do participate in the adviser’s 401(k) plan, frequently do not qualify for the adviser’s long term capital accumulation plan. These plans are usually based on restricted share grants or qualified stock options and are worth 20% to 30% of total compensation for an executive at the typical CCO’s salary grade. As a result the CCO’s base compensation is typically set 20% to 30% above that of his or her grade’s salary range to make up for the loss of a capital accumulation plan.

In spite of these multiple differences, we can say with 68% confidence that total median compensation lies between the upper and lower parameters as shown below:

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This chart shows that for a $5 billion complex the total CCO compensation could range between $150,000 and $200,000 with 68% percent certainty based on the participation received.

The chart for total and base compensation for complexes with between $10 billion and $100 billion in assets shows that, for a complex with $60 billion in assets, the base compensation was about $250,000 with a 60% expected bonus, or $400,000 in total compensation.

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The specifics of any CCO compensation plan have to be tailored to attract, motivate and retain the right qualified person and should be based on the effort, expertise and exposure involved in the specific position.

 
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