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CCO Pay Up, but Raises Sputter

Article published on July 11, 2016
By Jill Gregorie

Chief compliance officers once again got a pay bump last year, but the rate of raises awarded appears to be waning, results of a recent survey show.

For the fourth consecutive year, mutual fund CCOs saw their paychecks grow, with average total pay reaching $400,148 in 2015, up 2.8% from the 2014 average of $389,407, according to the CCO compensation survey conducted by Management Practice Inc. (MPI). The recent survey is MPI's 11th annual report, and included responses from 66 CCOs.

The 2015 pay bump compares to an average overall increase of 7.8% reported in MPI’s survey published last year, which included responses from 60 compliance chiefs. (Story continues below graphic.)
Forty-four of this year's respondents also participated in MPI’s survey last year. That group saw total compensation rise by 5.7% during 2015.

The proportion of this year’s survey respondents who reported receiving a bonus held relatively steady — 93% in 2015 compared to 95% the year prior — but for large fund firms, defined as those with over $75 billion in AUM, the proportion of pay those bonuses represented rose. In 2015, the bonus at large firms was about 66% of base pay. The year prior, respondents put that figure at 59%.

Potentially pushing up pay is a shortage of qualified candidates, industry recruiters say.
In part, the scramble for talent can be attributed to the growing number of firms with between $2 billion and $10 billion in assets that once used outsourced compliance staff but now seek to bring the function in-house, says Daniel Close, president of Barclay Simpson Executive Search.

“What we’ve seen is a movement toward middle market fund managers looking to develop more effective compliance programs, and increased accountability leading to more dedicated compliance officers on board,” he says.

The financial crisis further drained the compliance talent pool, as many of the law and consulting firms — typical targets for those recruiting CCOs — were forced to downsize staff and halt recruitment between 2008 and 2011. Many still have not recovered their headcount, recruiters say.

“This limits the talent that asset managers can pull from those firms,” says Justin Mandel, managing director at JW Michaels & Co., an executive recruiting firm that specializes in financial services.

MPI found that CCO salaries ranged drastically, from $110,000 to over $1,000,000, depending on factors including location, number of funds or subadvisors they oversee and whether the firm focuses primarily on retail or institutional clients. That compares to a range of $140,000 to $925,000 the year prior.

The size of an asset management firm especially impacts the CCO pay range, according to JW Michaels. The recruiter’s own 2015 compensation report says the pay range for asset management firms with under $50 billion in assets tends to run from $200,000 to $400,000; the range for those with more than $50 billion is between $800,000 and $2,200,000.

While Close acknowledges that the market can provide lucrative opportunities for qualified job candidates, he says that the quest for compliance professionals has led firms to adjust the skills and experience they seek from compliance leaders.

“A lot of people are very, very experienced, but there’s a shift now where you have companies that, depending on their size, think they have to pay $500,000 or $600,000 for an individual,” says Close. In fact, shops can “get someone for $300,000 who will do just as good of a job and be with the firm for a long period of time.”

That dynamic has created a “sweet spot” for compliance professionals who have eight to 12 years of experience, but may not have served in the CCO role. Such mid-level compliance professionals can spend time familiarizing themselves with the job before deciding to accept a CCO position and the burden of liability that accompanies that post, he says. The trend toward recruiting more junior compliance staff may be one factor contributing to a slowdown in the rate of increase for CCO pay.

MPI partner Jay Keeshan cites a number of other factors that could be tempering CCO wage growth. For one, during the post-crisis bull market, many firms dished out big raises to CCOs to recognize them for enduring the earlier, more difficult years. But now, those employers have reverted to more customary raises. Market forces, such as the shift from active to typically lower-margin passive funds, may be another factor. Add to that market volatility that is sapping assets and shops’ overall profits.

“You don’t see CCO pay soaring because of the pressures on cost right now,” he says. “You’re definitely seeing boutique firms losing assets and having tough times, and I’m sure that may have caused several CCO numbers to go down.”

On the other hand, the number of CCOs whose pay includes equity participation increased. In fact, 40% of compliance chiefs reported receiving restricted stock as part of their packages, up from 33% in 2014 and 29% in 2007, MPI data show. While pay for compliance leaders may be moderating, demand is not, Keeshan says.
“As long as the industry is alive, there is going to be a huge and ever-increasing need for highly skilled compliance professionals,” he says.

--Emily Laermer contributed the interactive table

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