Mutual Fund CCO Compensation in 2014
Written by Jay Keeshan   

MPI recently completed its tenth annual Survey of Mutual Fund Chief Compliance Officer Compensation and Organizational Practices. This bulletin summarizes the findings and is based on the submissions of 60 mutual fund CCOs from all regions of the U.S., representing funds with $2.8 trillion in assets.  This year’s study found that 59% of the participants were full-time employees and serve as CCO to both the fund and the advisor.

MPI recently completed its tenth annual Survey of Mutual Fund Chief Compliance Officer Compensation and Organizational Practices. This bulletin summarizes the findings and is based on the submissions of 60 mutual fund CCOs from all regions of the U.S., representing funds with $2.8 trillion in assets.  This year’s study found that 59% of the participants were full-time employees and serve as CCO to both the fund and the advisor.

 

Mutual fund CCOs continue to see pay increases in recent years after holding relatively flat through the financial crisis.  The average total compensation for the entire group of participants increased by 7.8% in 2014, to $389,407. However, this does not reflect the exact same group of CCOs as in last year’s report.  A subset of the survey participants, which includes 31 CCOs for whom data exists for two years (2013 and 2014), saw an increase in total compensation of 13.1% over the previous year. 

 

The vast majority (95%) of CCOs receive a bonus as a part of their total compensation, typically ranging from 25% to 100% percent of base pay.   While some of the highest-paid CCOs received as much as 200% or more before the market meltdown, that number has been decreasing and in 2014 the average bonus for large-fund CCOs was 59% of their base pay.  The majority of CCOs reported that their bonus is influenced by management (96%) as well as the board (78%).  89% reported that corporate performance is a factor. 

 

The range of CCO compensation for the reporting fund families was wide—$140,000 to $925,000—and depended on many variables, such as geographic location, number of funds and portfolios, retail or institutional distribution, number of sub-advisors, and mix of insurance related products. We also found that many CCOs were long term employees of the management company, or had many years of experience at another fund company. As a result CCO compensation was sometimes correlated with age and experience.

 

As the true costs and benefits of compliance have become clearer over recent years, there has been a trend toward splitting the cost of CCO compensation between the funds and the manager.  50% of CCOs reported being paid at least in part by the fund in 2014.

 

Benefits for CCOs have seen some fluctuation since the financial crisis.  Those qualifying for a matching defined contribution/401k plan were once as high as 72% in 2008, but this had decreased to 53% two years ago as many corporations eliminated or suspended their matching programs.  Last year saw the number climb back to 57%.  Just 19% of CCOs are eligible for defined benefit plans versus 38% before the crisis.  Restricted stock plans have remained at about the same level—33% in 2014 vs. 29% in 2007.  However, stock options, once reported by 25% of participants, have now dropped to just 13%. 


 

In addition to their compliance responsibilities, most participating CCOs perform other functions for the business. We found that 83% of the reporting CCOs perform analytical functions directly for the fund board, which might include involvement in the 15(c) contract renewal process or monitoring soft dollar expenditures.  Also notable in this environment is a continued number of participants reporting “Risk Management Support” as an additional duty, at 71% in 2014, up from 54% in 2007. 52% reported involvement in “Legal Support,” and 36% reported having “Global Responsibilities.”

 

The increasingly complex regulatory environment appears to continue to affect the typical background and skill sets of fund CCOs.  This year 45% of the respondents were lawyers, up from 34% in 2007.  Also on the increase were CCOs with at least some form of securities licensing, up to 66% from 53% in 2007.   CPAs, on the other hand, represented just 15% of the participants, down from 34% in 2007.

 

Internal reporting—apart from reporting to the board—saw 44% of CCOs reporting directly to the CEO. 22% report to the general counsel or CLO (Chief Legal Officer) and 19% report to a higher-ranked CCO at the advisor or parent company, with the rest reporting to the fund president, COO, or the CFO.

  

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A CCO’s compensation must be evaluated with regard to the effort, expertise and exposure of that particular fund complex. CCO compensation, as with any other position, is the result of determining how best to attract, motivate and retain the requisite talent for the specific assignment.  For more information regarding the MPI Survey of Mutual Fund Chief Compliance Officer Compensation and Organizational Practices, please contact Management Practice.