Pay and performance don't necessarily go hand in hand for fund directors, who were rewarded an average 8% pay increase at the biggest fund complexes last year, according to findings by a recent Management Practice study.
As corporate and shareholder profits tumbled in 2002, fund directors were still treated to sizeable pay raises. This even at a time when directors have come under criticism that they have not been diligent enough about protecting shareholder interests.
Mutual fund directors at the top 50 firms saw their wallets bulk up by 8.2% as the bottom line for their employers sank last year. Assets per director dropped by 6.7%, and the number of funds governed overall dipped by 4.5%, while the directors' median compensation climbed to $113,000 at the biggest fund groups.
Those in the smaller groupings made proportionally less. Directors with between $35 billion and $60 billion in assets under their oversight were compensated a median of $87,500, while those overseeing $500 million to $1 billion in assets made $18,000.
Compensation also directly correlated to the number of funds governed. The median for those with more than 70 funds to look after was more than $110,000, while those in the 50 to 69 fund bracket saw $92,000 in compensation come their way. At the bottom of the scale, those governing between one and six funds made a mere $11,334.
17% Raises For the Smallest
Those directors working at smaller complexes reaped even greater percentage gains in compensation due to a growing desire to attract, retain, motivate and even tout quality workers in this suddenly integrity-conscious society. At the smaller complexes, where absolute pay is generally significantly lower, compensation jumped by 17%, while assets sank 4.2% and funds drooped 2.5%.
The increases in incentive pay can also be attributed to, in part at least, a growing legal environment and public exposure of all fund directors in the wake of scandals such as the Enron and WorldCom fiascoes. However, the Sarbanes-Oxley Act can only be partially to blame, as it was not enacted until late in 2002.
Data for the survey was drawn from the public documents of 279 complexes, representing 1,533 directors/trustees combined with the confidential responses of 57 participating complexes.
Directors at select firms were even more in the money than their counterparts. Independent directors at Putnam Investments saw their average jump $21,000 to just about $228,000 in 2002, according to regulatory filings.
Others such as Joseph DiMartino, who reportedly earned $816,000 for his oversight of 189 funds at Dreyfus, and a pair of directors at Franklin Resources. who both are said to have earned more than $372,000 in compensation, are all prime examples of the ramped-up compensation policy.
However, not everyone ignored the margins, as both Fidelity Investments and Janus cut directors' pay. Fidelity directors were not suffering by any means, though, still pulling in a reported $262,000 in 2002, down less than $4,000.
At Janus, which had a tumultuous 2002, directors saw significant cuts dropping their compensation to a range of $94,000 to $184,000. Each director saw $185,000 the previous year, according to filings.
Critics say that fund directors often fail to negotiate lower fees or pick the best possible managers. Meanwhile, others blast the directors for being too tight with the fund execs. Some fund directors do a very conscientious job, while others are just rubber stamps for management, according to Arthur Levitt, former chairman of the Securities and Exchange Commission. "I've known fund directors, many of them, and none of them get even $100,000," Levitt said in an earlier interview with Mutual Fund Market News (see MFMN 10/14/02).
"For those who are being compensated that much, though, the amount is so excessive that it cannot help but create an impression that the interests of board members are more closely aligned with management than with the shareholders they are intended to protect," Levitt said.
However, some feel directors deserve every penny they get these days due to greater responsibility than in the past and a plethora of legislation they have had to deal with in the last year and a half. And while some may agree they are overpaid for what they do, they also argue that directors' responsibility doesn't come without a price.
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