Compensation for independent mutual fund directors increased an average of nine percent last year with median pay at larger fund complexes at $66,000, according to a survey by Management Practice, a fund consulting firm in New York.

The report showed that for the first time since Management Practice began conducting the annual survey seven years ago, compensation for independent directors rose at a faster rate than the number of funds which the directors govern, said C. Meyrick Payne, a senior partner at the firm. While compensation was up nine percent, the number of funds increased 5.7 percent, Management Practice said.

With the increase, directors received total compensation per fund of $1,818 last year, up from $1,591 in 1997, according to the survey. Compensation for directors per fund was $2,528 in 1992.

Management Practice based its analysis on SEC filings from 328 mutual fund complexes with nearly 1,700 directors. The report did not include average salaries for directors. Management Practice made public a summary of the survey on April 8.

The rate of increase in compensation last year further justifies the increased scrutiny which directors face, Payne said. He noted that assets under management in funds included in the survey grew by 18.4 percent. Fund directors also are finding themselves defendants in lawsuits with greater frequency, Payne said.

"Everybody is looking over (directors') shoulders," Payne said. "The pressure has really come on now."

The rate of the 1998 increase was identical to the nine percent rise in median compensation which Management Practice reported for 1997. Directors' median compensation rose approximately six percent in 1996.

In 1998, Management Practice found that for non-bank and non-insurance mutual fund groups with assets of more than $10 billion, median compensation was $66,000. Directors at fund groups with up to $10 billion had median compensation of $25,300, according to the report.

Insurance company mutual fund directors had median pay of $61,000 for complexes with more than $10 billion in assets and $21,000 for those with up to $10 billion. Directors at mutual funds affiliated with banks had median compensation of $35,000 for fund complexes with more than $10 billion in assets and $9,500 for those with up to $10 billion in assets.

The disparity in compensation for directors of bank-affiliated funds and other fund complexes may be attributable to the predominance of money market funds at bank fund groups, Payne said. Money market funds should, in general, be easier to oversee than other categories of funds, Payne said. That could lead to lower pay, he said.

Although SEC Chairman Arthur Levitt said last month the SEC will change its regulations and practices to strengthen the independence of fund directors, he has not focused attention specifically on directors' pay.

In a separate development regarding fund directors, mutual fund industry lawyers and executives said last week that a special panel which the Investment Company Institute has formed to examine directors' duties has begun soliciting written opinions from outside authorities on the role of directors. The Advisory Group on Best Practices for Fund Directors plans to begin interviewing these authorities a week from today, executives said.

The ICI announced the formation of the Directors Advisory Group in response to Levitt's announcement of impending regulatory changes. (MFMN 3/29)

The panel is expected to issue a report to the SEC by mid-summer on the best practices of mutual fund boards.

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