How much money an endowment’s chief investment officer makes is heavily dependent on the fund’s performance. But lackluster returns aren’t the only thing that can drag down compensation, according to new research.
Researchers at the University of North Carolina and University of Virginia identified factors that drive CIO compensation at non-profits. Some were fairly self-evident: CIOs who deliver better returns earn bigger bonuses, and larger organizations pay more overall. But compensation was also significantly impacted by factors such as the fund’s governance and location, according to UNC PhD student Matteo Binfaré and UVA business school professor Robert Harris.
Boards with more independent directors, for instance, held tighter purse strings when it comes to CIO compensation. Governance also impacted how much a CIO’s total compensation was based on performance-related bonuses. For example, organizations which benchmarked themselves against peers tended to place more emphasis on bonus compensation tied to investment returns, as did non-profits with stricter compensation policies in place.
“This suggests that managers are rewarded for their performance whenever there is a more explicit link to the performance of close competitors,” the authors wrote.
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Binfaré and Harris also found that nonprofits paid more the closer they were to a major financial center — and that they “do so in a way that is more sensitive to endowment performance.” According to the study, chief investment officers based in or around Boston, Chicago, New York, or San Francisco earned “significantly higher” bonuses compared to CIOs elsewhere.
“These effects likely reflect differences in labor market conditions, such as competition for talent and cost and quality of living considerations,” the authors wrote.
Overall, bonus compensation appeared to make up a much larger portion of pay packages for CIOs than those of other non-profit executives, such as CEOs and chief financial officers. Binfaré and Harris determined that more than 30 percent of the average CIO’s total compensation came from bonuses, which ranged widely in amount: “While the median bonus is 81,000 dollars, the top quartile of investment officers each earn more than a quarter million dollars,” they found.
Beyond actual pay, the researchers also found that many non-profits offer certain “perks” as an additional form of compensation for executives. More than a third reimbursed first-class or charter travel, while over half provided housing allowance or a residence for personal use. A third of the organizations provided personal services such as a maid, chauffer, or chef.
Employers offering a lot of these executive perks also tended to offer higher performance-related pay, which Binfaré and Harris suggested “may reflect increased competition for investment talent.”
