Chief compliance officers reported a big jump in compensation during 2023, but the increase had more to do with the size of the bonuses fund advisers hand out after a good year rather than recognition of the importance of compliance during a high-stress period of regulatory change
CCOs do play a key role for both fund boards and fund advisers, and do appear to be handling intense compliance demands with aplomb, according to Jay Keeshan, of Management Practice, Inc. (MPI), a compensation expert who conducted surveys for the 2024 MPI Mutual Fund CCO Compensation Survey that MPI will make public this week.
Average total compensation for mutual-fund CCOs rose from $463,016 during 2022 to $500,664 during 2023, according to the survey, but the 8.1% jump between the two figures is less impressive than it looks, Keeshan said.
This year’s 8.1% looks higher than usual because average compensation dropped 3.7% last year, so this year’s normal growth in salaries and above-average bonuses looks much more dramatic.
“The industry had two good years in 2020 and 2021, so bonuses pushed those numbers up” with increases of 5.5% in 2020 and 3.85% in 2021, Keeshan said.
“In 2022 we were getting over Covid, things were more normal and the industry did not have a great year; assets were down something like 15%, so our estimation was that we saw a negative number there because the industry had a tough year and bonuses suffered,” Keeshan said.
A subset of 46 CCOs (out of 64 total) who participated in surveys covering both 2022 and 2023 reported a much more predictable increase of 4.5% for 2023, which matches the pattern of previous years during which frequent survey respondents showed slow-and-steady changes compared to the far more volatile numbers reported by one-time responders, Keeshan said.
The survey included responses from 64 CCOs with average total compensation ranging between $100,000 and $1.7m, representing more than 2,600 funds with more than $4.6trn in assets.
Ninety-one percent of respondents said their bonus is influenced by management; 82% said company performance is also a factor.
Reporting to both the fund board and the adviser
Compensation typically rises with the size of the adviser for whom the CCO works, or the number of funds involved, Keeshan said.
Two thirds of the CCOs said they report to both the fund adviser and the fund board; 60% said the funds they support contribute at least part of the compensation they are paid by the fund adviser.
“Fund boards do have a lot of input on salaries and on bonuses, and all CCOs report to the board, but in most cases they also report to the adviser and that is who sets their pay,” Keeshan said.
“Boards are responsible for reviewing and approving pay, and they are pretty consistent about making sure CCOS are well compensated, because they want someone good and don’t want to see CCOs jump ship, but they report to the adviser as well – usually someone at the top or near the top of management,” he said.
All CCOs report to the board, but there is no rule defining who among fund-adviser executives they should report. Of Those responding, 28% said they report directly to the CEO, another 28% report to a higher-ranked CCO, 21% report to the general counsel or chief legal officer and the rest report to fund presidents or other C-suite executives.
It does present a potential conflict to have part of a CCO’s compensation depend on company performance, but, in many companies, almost all bonuses are affected to some degree by the performance of the company which reduces the chance a CCO could be paid more to improperly limit compliance costs, as does the oversight of a board that is deeply involved in the priorities and performance of the adviser’s compliance staff.
“You wouldn’t want to see the CCO getting paid more for lowering compensation costs, but for most companies there is more money In the bonus pool, which makes the impact on a CCO’s bonus more indirect,” Keeshan said.
Expanding role
The workload for CCOs had definitely expanded, but their budgets and staff requirements seem to have kept pace.
“You don’t hear a lot of CCOs complaining, though any of them would appreciate a larger budget or more people,” Keeshan said. “The board will often support them in That because they want to be sure the CCO is happy and well equipped, but in our experience, most CCOs can get the resources they need if they make enough noise about it.”
What they can’t do is limit the scope of their responsibilities, which include, for 37% of respondents, the need to be involved in 15(c) processes or in monitoring soft-dollar expenditures; 63% also report “risk management support” being added to their duties in 2023, compared to 54% in 2022. Another 47% reported being involved in “legal support” while 39% reported having “global responsibilities.”
Even without those relatively new additions to their responsibilities, CCOs must also understand and be competent in a much wider range of topics than most executives.
CCOs not only have to be in control of the regulatory environment, they have to understand changes that are still coming, understand the policies and operations of the fund adviser as well as knowing how its technology infrastructure works, how it is being used and what compliance or operational problems might crop up following the addition of AI or other technologies.
“The marketing director doesn’t have to touch everything, but the CCO does,” Keeshan said. “CCOs just wear a lot of hats; they need a wide variety of skills.”
