Pay at state's fund firms likely to rise up to 15%

Pay at Massachusetts mutual fund firms is likely to rise as much as 15 percent this year as bonus season gets underway, say executives and consultants, to the most generous level in years, likely providing a boost to the regional economy.

The increases are driven in a large part by rising stock markets, which benefit many financial services firms.

For mutual funds, compensation both locally and nationwide "is at the highest level it's been, post-bubble," following the stock market declines of 2000, said Bob Gorog, a partner at the executive recruiting firm Heidrick & Struggles. "This is nationwide. It's a healthy hiring market, and people have more options than they had before."

A growing number of hedge funds and private-equity firms are trying to hire the same talent as large fund companies, Gorog said. Tracking pay in those sectors is harder, since there are many smaller firms. But among mutual fund companies the average compensation for top-performing managers will rise between 10 and 15 percent over 2005 levels, Gorog said, significant dollars for a typical senior fund manager with a base pay of $225,000, and annual bonuses up to four times that.

At one fund company, MFS Investment Management chief executive Robert Manning said he expects to pay bonuses about 10 percent higher this year, and total compensation will be around 5 percent higher this year, on average, for investment professionals.

Manning noted the figures were only averages and will vary greatly among employees. "Obviously there is great dispersion around those numbers," Manning wrote in an e-mail. "Some people at MFS will be up 50 percent and some will be down 50 percent depending on their performance."

Manning said MFS's figures were in line with those from a national survey of fund companies done by McLagan Partners of Stamford, Conn., a large compensation-consulting company for the industry. (A McLagan executive said the firm's policies prevent it from discussing the figures.)

Barry H. Evans, president of MFC Global Investment Management, which oversees most of the John Hancock Funds, said he expects total compensation will rise about 10 percent this year as many funds outperform their indexes. "I think it's a good year for the industry," he said.

Healthy bonuses can make a difference in the state's economy since they represent money that businesses mostly earn from customers in other states, said Alan Clayton-Matthews, a professor at the McCormack Graduate School of Policy Studies at the University of Massachusetts at Boston. "It's always nice to have money flowing in from somewhere else," he said.

Using state payroll data, Clayton-Matthews calculates that in "bonus season" of the last three months of 2004 and the first three months of 2005, annual bonuses amounted to $7.7 billion. That's across all industries including technology and services fields like law and medicine. The figure is significant compared with the state's total current payroll of $177 billion, he said, adding it's possible that current bonuses across all industries could exceed the peak of $8.9 billion paid in the bonus season ending in 2000.

Several other large mutual-fund companies in Boston declined to discuss their pay trends in detail including Fidelity Investments, Putnam Investments, and State Street Global Advisors.

Frank Glassner, chief executive of Compensation Design Group Inc., an executive-pay consulting firm in New York, said on average fund companies are likely paying 13 to 15 percent more this year compared with 2005, based on what he's hearing from executives and the performance of stocks in their portfolios. Many hedge funds and private equity companies may be paying even more, while financial sectors like retail and mortgage banking are likely to see pay similar to past years because their performance has stayed the same.

Glassner also said that compared to previous years, fund companies are linking bonuses more tightly to performance. "Clearly the bowl may be filled higher for the stars, and will be more empty for the dogs," he said.

That's the case at Bank of America Corp.'s big Columbia Funds unit, based in Boston. Executives there declined to discuss how pay this year would compare to previous years. But Colin Moore, head of its stock-investment management group, said he has altered its bonus structure so that managers can earn an annual bonus of up to six times their base salary at one extreme, or no bonus at the other. For fund managers at his firm and others, base salaries can range from $150,000 to $300,000 depending on experience, he said. In the past the potential bonus was much smaller, topping out at the equal of a manager's base salary.

"The range of bonuses was so tight there was almost a disincentive to do well if you could get a decent income" with mediocre returns, Moore said.

Ross Kerber can be reached at kerber@globe.com.