Variable Pay Greatest Contributor to Investment Management Comp Growth

March 18, 2008 ( - In its 2007 Investment Management Compensation Survey, Callan Associates found that increases in variable components of pay (cash bonus, commissions, profit distributions and equity) were the greatest contributors to compensation growth for the survey period.

According to results published by the Callan Investments Institute, the data suggest firms continue to reduce fixed compensation costs (base salaries) in favor of variable compensation, particularly for the most highly compensated positions. As a percentage of total compensation, bonuses now average 45%; base salary 43%; and other non-cash compensation 9%.

Incentive compensation for new business is most common among sales professionals, as 65% of respondent firms reward sales professionals for each new account. The average commission is 21% of the initial annual revenue generated and declining payments thereafter, Callan said.

Equity compensation has increased across nearly all investment management functions since Callan’s previous survey. Portfolio managers experienced the greatest increase in equity ownership, with an average ownership of 10% for this position. Executive level positions, particularly CEOs, asset class CIOs and COOs, also experienced significant increases in equity distributions.

Callan’s survey of more than 100 investment management firms’ compensation practices and trends in the U.S. institutional investment market from 2005 to 2006, found that compensation grew across nearly all positions examined during the measurement period since Callan’s 2003 survey. Consultant relations professionals, portfolio managers, client service professionals and chief operating officers experienced the greatest overall increase in pay during the period, according to Callan, while dedicated marketing professionals and research analysts were the only positions to experience a decline in compensation rates.

Callan found that on average, professionals working for large firms (those with assets greater than $10 billion) earned more than their counterparts at medium and small sized firms. Additionally, the survey results showed experience is generally closely correlated with compensation levels – the most highly compensated professionals typically have more than 15 years experience (with the exception of sales professionals).