CHARACTERISTICS OF A CEO
Advisors tend to rely on resumes and
experience when hiring top executives, especially when they have little
experience with the role they are hiring for. While education, job history
and a record of accomplishments are
important data points, the line of inquiry
should be more subjective:
• Vision – Do they have the ability to
examine the market, the competition, the
capabilities of the firm and the challenges they must overcome to develop a clear
road map for the business going forward?
• Decisiveness – How have they
demonstrated critical decision making?
Usually, leaders are not tested until confronted by a difficult decision or an urgent
circumstance. Good leaders can explain
their fact-gathering process and their
method of deliberation in crisis situations.
• Focus on results – It is easy to
get excited about aspirations; translating ideas into reality provides the real
test. Ask how candidates define success
beyond revenue growth and profitability. Their responses will reveal their
aptitude for business as well.
•Ability to develop others –
Ultimately, leaders prove their worth
by helping others achieve their potential — even when this threatens their
• Risk management – How will they
protect the firm against loss, develop
processes where each employee feels
safe and ensure the firm maintains its
positive reputation in the community
and with clients? These skills are critical
in today’s environment.
The median salary for advisory firm
CEOs in 2019 was $300,000, according
to the 2019 InvestmentNews Adviser
Compensation & Staffing Study sponsored by BNY Mellon | Pershing. This
increase from the previous year proves a
high demand for qualified executives.
Most top executives also receive a
bonus tied to several key metrics including firm profitability and achievement of
certain priorities outlined by the partners.
As an example, advisory firm partners
may have criteria around client satisfaction, implementation of new technology
or improvements in employee engagement in addition to the growth numbers.
The typical (median) target incentive compensation for CEOs was 30% of
their total compensation. The average
target incentive was 36% of their base.
In many cases, advisory firms choose to
hire a COO instead of a CEO, as the lead
partner often takes that role as the firm
tests the idea of professional management.
Generally, a COO will be evaluated on the
ability to translate vision into action with a
special emphasis on improving workflow
and improving the efficiency and effectiveness of the business. COOs may have
stronger technology skills and certainly
possess a stronger appreciation of detail.
According to the above-mentioned
study, the median COO salary shrank
slightly (-7%) from $166,000 in 2017 to
$155,000 in 2019. While we can only speculate about the reason for this decline, it
appears that many firms have promoted staff members to the COO position
instead of hiring from the outside.
Historically, many firms have granted
the COO title to an office manager or
director of operations who has accumu-
lated tenure in the firm as operational
scope has grown. This change in posi-
tion title, however, has rarely result-
ed in significant changes in pay. As a
result, there was a significant difference
between “promoted COOs” who had
compensation closer to the 2017 median
of $166,000 and “hired COOs” who were
closer to the 3rd quartile of $204,000.
As advisory firms make the leap to
professional management, they must
calculate how they will get to critical
mass so that the cost doesn’t become a
drag on the company. The added expertise should become a catalyst for greater
growth and profitability.
When measuring profitability in an
advisory firm, it is important not to
confuse management or administrative
compensation with professional compensation. Direct expense is where one
accounts for professional staff compensation. Management or administrative
compensation falls under overhead or
indirect expense. Being able to discern
the impact of the different costs on both
the Gross Profit Margin and Operating
Profit Margin is key to managing a successful enterprise.
Advisory firms that can consistently
generate a 60% (or better) gross profit
margin and a 30% operating profit margin while growing organically at a 4%
to 5% rate exclusive of market performance tend to be more enduring firms.
Sustaining these numbers is hard without continuous investment in the business and a discipline around managing
pricing, productivity, service mix, client
mix and expenses.
Mark Tibergien is CEO of BNY Mellon’s
Pershing Advisor Solutions and co-author of
“The Enduring Advisory Firm,” published by
Wiley. Reach him at email@example.com.
CEO Salary and Total Compensation, 2017 vs. 2019
CEO 2019 2017 Change CAGR
Median Salary $300,000 $251,000 20% 9.3%
Implied Bonus $57,000 $49,000
Median Total Compensation $357,000 $300,000 19% 9.1%
COO Salary and Total Compensation, 2017 vs. 2019
COO 2019 2017 Change CAGR
Median Salary $155,000 $166,000 -7% - 3.4%
Implied Bonus $39,000 $34,000
Median Total Compensation $194,000 $200,000 -3% - 1.5%
Source: 2019 IN Adviser Compensation & Staffing Study sponsored by BNY Mellon | Pershing