What do they make?
The SEC's new chairman expresses interest in John Bogle's drive to require people who run mutual fund firms to disclose their pay
By Ross Kerber, Globe Staff | April 28, 2006
How much is Fidelity Investments chairman Edward C. Johnson III paid?
That's something John C. Bogle, a mutual fund industry founder, would like to know -- and now the new head of the SEC might be joining him.
A proposal by Bogle to require mutual fund companies to disclose the pay of their top executives ''is an idea worthy of exploration," Christopher Cox, the new chairman of the Securities and Exchange Commission, said in a recent interview.
Cox's remarks pleased some investor advocates and could put new pressure on the mutual fund industry, which manages the wealth of 95 million Americans, nearly $10 trillion in all.
Cox, a former Republican congressman from California appointed by President Bush last summer, stopped short of endorsing executive pay disclosures outright, or saying if or when he might seek action on the idea from all five members of the commission.
But Cox suggested Bogle's ideas are in keeping with his own broader agenda to require the disclosure of clearer information about executives' compensation.
''The principles we are already applying to corporate disclosure are also relevant in the mutual fund realm," Cox said. ''Mutual fund investors have a right to know how fund assets are being spent."
Many fund firms, such as Fidelity Investments of Boston and Vanguard Group Inc. of Pennsylvania, are not publicly traded, so are not compelled to spell out how much they pay their leaders. That frustrates critics, who note the industry's growing influence on public-policy matters, including retirement and health savings.
So far, the pay debate outside of the fund industry has centered on simplifying reporting, so it is clearer how much executives at public companies make in salary, bonus, and stock compensation.
As the SEC refines its rules, Bogle, former chairman of Vanguard, filed a comment letter with the SEC on April 10, urging that disclosures also be required of those who manage and distribute mutual funds.
''It is high time that this corporate veil be pierced," Bogle wrote.
Bogle has some support from investor advocates. Some said Cox's statements reflect a broader activist approach they think he has continued at the agency.
''He's really been strong," said Barbara Roper, director of investor protection for the Consumer Federation of America.
Many expected Cox would seek to roll back some of his predecessor's initiatives, but that has not happened, Roper said. ''So far, he hasn't been the SEC chair that some had hoped and others had feared he would be."
How to regulate mutual funds is a hot area for the SEC. Since 2003, there have been massive fines and settlements with some of the industry's largest players, involving their trading and sales practices. But loose ends remain, on questions such as whether to require independent fund chairmen and how to prevent trading violations.
Already, the pay of mutual fund directors is available to the public via documents filed with regulators. But the SEC does not require exact pay figures for fund managers, and pay for those who oversee the funds is spelled out in only a few cases of funds that are operated by publicly traded companies.
For instance, Putnam Investments' chief executive, Charles ''Ed" Haldeman, earned $14.5 million last year, according to documents filed by Putnam's parent, Marsh & McLennan Cos.
Haldeman said yesterday that having his pay disclosed has never seemed to be a problem. ''I'm glad that 10 million shareholders have access to my compensation. I don't want it to be hidden," he said.
He said he does not want to tell other companies what to do, but added that ''anytime someone as smart and competent as John Bogle makes a recommendation, you've got to think seriously about it."
Bogle, who still has an office at Vanguard, said in a telephone interview that ''I don't know how much they deserve or don't deserve." But investors have a right to the information, he said.
Also, high pay at mutual fund companies is a likely reason that they have not been more active in trying to scrutinize corporate salaries overall, even though mutual funds own about 28 percent of US common stock.
''That's disgusting, and I think it's because 'Let he who is without sin cast the first stone,' " Bogle said.
Spokesmen for the fund industry's trade group, the Investment Company Institute, for Fidelity, and for American Funds' parent, Capital Research and Management in Los Angeles, declined to comment.
A Vanguard spokesman noted that executive pay is just one expense for investors. ''We believe there are more important considerations for an investor to focus on when selecting a mutual fund, in particular, the fundamental factors of risk, cost, return and taxes," said the spokesman, John Woerth.
David Ruder, a former SEC chairman who is now chairman of the Mutual Fund Directors Forum, which represents independent fund directors, said management firms should at least disclose what they pay their leaders to the funds' boards, who could then decide whether to make the figures public.
One ironic result could be even higher pay, if bidding wars develop for star managers and executives, ''like free-agency in baseball," he said. ''On the other hand, I happen to believe that disclosure is an important and useful part of our securities law, so if that creates competition and raiding , that's life," Ruder said.
Ross Kerber can be reached at kerber@globe.com.
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