Does Chief Investment Officer Pay Reflect Performance? Evidence from Non-profits

Abstract

This paper examines the compensation of Chief Investment Officers (CIOs) of nonprofit endowments, which have different economic models and monitoring arrangements than those of other institutional investors. We find that compensation reflects the demands of the job, abilities and experience that individuals bring to the job and how well the endowment performs. Pay relies heavily on bonuses and is positively linked to the CIO's education and professional experience. Large endowments hire CIOs with stronger backgrounds, pay them more and structure pay significantly linked to endowment performance. Even controlling for size, compensation depends on an endowment’s governance and location. The results are consistent with the increased investment skills needed to manage large pools of capital often involving alternative assets, and with differences in labor market and monitoring arrangements across endowments. For large endowments the sensitivity of pay to performance is greater than often reported for mutual fund managers.