Boyden Executive Search

FundFire examines recent study exploring factors contributing to Endowment and Foundation CIO compensation, including insights from Boyden’s Financial Services Partner, Karen Kosiba Edwards.

By Aziza Kasumov

This article was originally published on FundFire's website. Click here to view the original article.

Endowment and foundation CIO pay is closely linked to investment returns. But other factors, including the location of an investment office and the percentage of independent members on an institution’s board, may also influence comp, according to a new study.

Even controlling for the size of a nonprofit’s endowment, “CIO compensation is positively and significantly related to investment returns,” a study published in December by Robert Harris at the University of Virginia (UVA) and Matteo Binfarè at the University of North Carolina found. A 1% increase in investment return, the researchers wrote, leads to a 3% increase in the CIO’s pay.

Overall, more than 60% of nonprofit CIOs are on some sort of incentive compensation plan, the two researchers found. Investment returns were only significantly related to a CIO’s bonus pay, not the base salary.

Performance, however, wasn’t the only factor that the researchers found to be linked to compensation levels. The size of an endowment was closely linked to CIO pay, echoing findings from the for-profit world. The percentage of independent directors at an institution and how close the investment office is to a financial hub also had a bearing on CIO pay. A higher percentage of independent board members generally means lower pay, while institutions with investment offices closer to cities like Boston or New York tend to pay up. 

Gender, on the other hand, seems to have no significant impact on pay, the researchers found.

“I would not want to claim that we’ve done an exhaustive study” on gender and pay for CIOs, Harris notes. “But once you control for factors such as size, and some of the other characteristics… we did not see any evidence of a difference.”

That may be because the endowment and foundation industry “has actually attracted women over time, so you see a few more there than in other places,” says Karen Kosiba Edwards, partner at executive search firm Boyden. She says her sense, too, is that women are paid fairly in the space. Pay is often equitable in industries where a lot of “measuring” takes place, she says. “And this is a profession in which there’s a lot of measurement being done.”

There are a few other things institutions take into consideration as well when determining a new CIO’s pay, recruiters say.

Great training, such as having been mentored by one of the institutional investment industry’s icons, is something that nonprofits are willing to pay up for, says Deb Brown, managing director in Russell Reynolds Associates’ investment management practice. Case in point: Last year, five of the top 10 spots in Bloomberg’s ranking of the highest-paid university endowment leads were held by David Swensen, the legendary, longtime CIO at Yale University, and people he’s trained over the years, as reported.

A CIO’s network, “whether that translates into being able to recruit talent or talk to your peers or being well known by top tier managers,” is also a factor institutions consider when determining pay, Brown says. On top of that, nonprofits also tend to pay a premium to relocate a hire. 

Overseeing an in-house investment management team, as opposed to hiring a CIO who predominantly invests through funds, “tends to push up compensation” as well, she adds.

Harris and Binfarè used data from the tax return form 990, some variation of which most nonprofits file with the Internal Revenue Service (IRS), for their study. The researchers used information from the years 2009 to 2017 and collected more than 1,092 annual CIO pay data points from 191 different institutions.

But the complexity of some compensation plans is not fully captured in the filings used for the study, the researchers acknowledge. Some institutions, for instance, award bonuses on a rolling basis over a period spanning years, or only after a certain amount of time has passed as a “strategic retention decision,” adds Anne Fraser Keating, of executive search firm Fraser Keating Associates.

Such years-long pay effects can’t be fully captured by a data analysis based on IRS filings, notes Harris – which is why the researchers were surprised to still find a pay-to-performance link. That suggests that pay-for-performance sensitivity, in reality, “is actually much stronger than our results show,” Harris adds.

Still, some institutions don’t pay based on performance, instead giving their CIOs a higher base compensation. Those tend to be institutions where the investment committee makes more of the financial decisions on managers and CIOs “don’t have that much control over performance in that regard,” notes Keating.

Overall, recruiters say compensation packages vary largely from institution to institution – and “you probably see new compensation plans whenever there’s a new CIO,” says Edwards.

“Really smart people are setting up these compensation plans,” she adds. “The fact that they keep getting redone suggests that no one has figured it out perfectly yet.”

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