The trend toward ever greater integration of insurance into the world of financial services could place CIOs in an attractive financial position over the next few years. Salaries for insurance CIOs are likely to increase, particularly among carriers that want to transform their business by leveraging technology. Today, insurance CIOs generally are earning salaries on the lower side of the financial services. But as insurers become bigger cogs in the financial services wheel, insurance CIOs will discover one wonderful fact: CIOs within the financial services industry receive the highest average compensation among CIOs in all industries.

Those are some of the findings and opinions of companies such as META Group, which is in the final stages of presenting its annual IT Staffing and Compensation Guide, and Spencer Stuart, the global executive search firm, which recently completed its own IT compensation study.

Carl Gilchrist, a partner at Spencer Stuart in charge of the North American CIO field, says his companys report concluded there is a scarcity of top information officer professionals with a proven track record, and that continues to drive CIO salaries higher. Spencer Stuart claims the total average compensation for CIOs in financial services is $459,123. Included in that is a bonus average of $178,021.

META Group program director Maria Schafer pulled out several insurance salaries from the compensation guide she was preparing and found the highest salary for an insurance CIO was $300,000 at a northeastern U.S. insurance carrier. Salary for an insurance CIO in a western state was $250,000, according to Schafer. My observation on insurance data over the last couple of years is there are two extremes, she says. There are those at the topthe leading companiesthat are trying to transform their business and move toward greater degrees of automation, and they want to leverage technology to do that. She believes those insurers are willing to pay for top help, whether in the form of salaries or bonuses.

The other extreme has smaller companies trying to eke out every last dime and still using manual processes, she says. They dont leverage technology and are probably not the kind of places you or I would want to work.

By geography, the East and Midwest have the highest-paid CIOs, Gilchrist points out. Financial services still is the highest-paid industry, he says. Although many would guess the eastern states in particular would be home to the highest-paid CIOs, the Spencer Stuart study shows the Midwest is ahead in average total compensation. Midwest salaries ($285,000) in financial services are slightly lower than in the East ($290,000), but Midwest CIOs earned greater bonuses ($238,000) compared to those in the East ($182,000). The South and West clearly trail the other regions, with the West coming in third in total compensation with $362,000 and the South last with an average of $347,000.

Numbers that are insurance specific are a little harder to come by. While Schafer does not have the final numbers for this years META study, she reports that data from last year showed a median salary of $185,000 for the three-dozen insurers that reported CIO salaries in the survey. The figure does not include an average bonus of $80,000.

Her study of salaries a year ago showed an average total cash compensation of $297,000 for CIOs across all industries with the median total compensation at $264,000. It seems to me that with just the three or four data points [for insurers] Ive pulled up, you get to just about the median, she says. It looks like about $190,000 [in salary] for an average CIO in insurance. Thats a little bit below the average when you look at other industries, but when you figure the other industries include financial services as well, perhaps thats not totally surprising. Insurance has not typically been known as the best place to make the best buck.

Schafer believes being tied to financial services is a benefit to insurance CIOs, particularly as insurance carriers are linking themselves to other sectors such as asset management, investment banking, and others. I think the problem for CIOs in insurance is which perception is going to dominate, she says. Is it insurancethat stodgy, old thingor is it insurance as part of financial services. Somebody who is savvy is going to be able to pick that out, but there is a negative stereotype attached to a lot of insurance stuff. Its not necessarily the forward-looking profile people would instantly think of, so the association with financial services can be only beneficial.

Bonus Question

Many companies are turning to bonuses for their CIOs to boost compensation. Jane Koppenheffer, CIO at Penn National Insurance, supports the idea, both for herself and her employees. Within our company we have a very good mixture of fixed compensation and incentive compensation, she says. That applies not only to myself, but to about 50 members of my IT staff who are on an incentive compensation plan. That is roughly 40 percent of the Penn National IT staff.

Tying excellent compensation to delivery results really is helping our company, says Koppenheffer. The incentive compensation area is where specific results are expected, and thats tied into significant financial rewards.

For herself, an incentiveis tied to corporate results, specifically the IT departments contribution to the bottom line. There also are objective criteria Koppenheffer is judged on. Every year they can change, but for the past year its been certain strategic projects being completed on time as well as being an active contributor to the strategic direction of the company and being able to help the business units proactively in identifying solutions, she says.

Percentages vary from five percent to 15 percent of base salary for most jobs, but the total can go higher, although Koppenheffer declined to reveal how high. Its a very attractive incentive plan, she says. Its something to shoot for and helps focus performance.

A year ago, bonuses were going down, but Schafer believes they have rebounded for insurers as the industry has dug itself out from under huge losses. Still, struggling or not, CIOs are not looking to move if they cant improve their situation, and often that means a higher salary. The knowledge level of leading CIOs also means they know what to expect in the job market. This is one area youre not going to be able to cheap out, says Schafer. Youre talking about someone with a depth and breadth of experience that encompasses finance, management, and technologythe whole array of competencies to be effective.

She says a CIO needs to know how to operate in different environments. To be an effective CIO, in many ways, is like being a politician with an accountants cap and a pocket protector, says Schafer. You need to operate in all those spheres. Youre not going to find too many people easily able to be a good CIO, so salaries have tended to be pretty stable.

The Little Guys

Bonuses can be valuable for smaller companies, particularly those trying to retain a CIO or a top technologist. Schafer points out that many smaller companies have different titles for the people running the IT department, and CIO is not necessarily one of them. Typically they are more of a general manager, and often they have the title of director of IT, she says.

Base salaries are lower, as Gilchrist points out in the Spencer Stuart survey. The average total compensation for financial services companies under $1 billion in revenue is $380,000. For those between $1 billion and $10 billion, the average compensation rises to $483,000. For companies over the $10 billion mark, the number is $656,000.

Still, as smaller companies turn to technology for more help, they find they have to up the ante for good CIOs as well. More often than not you are going to see salaries lag behind the major firms, says Schafer. But a lot depends on how much influence the CIO is going to wield. If the company is highly tech driven, it has to be willing to pay comparable salaries because thats the only way it is going to get someone. A CIO with a smaller firm may not have as large a budget to manage, but for the companys success it is important to have someone sophisticated enough to acquire the right technology and use it the right way, she says.

Playing Catch-Up

Schafer believes technology is changing the insurance industry. Its one of the areas where we see this rush to make technology an integral part of what theyre doing, she says. Insurance was a little later to the game, but theyve really gone after it, especially in companies where there is a recognition that transformation needs to happen. She believes many insurance companies refused to view their industry as technology driven, but that is beginning to change. With the Internet being able to offload agents into portals and being able to manage certain aspects of what has been a highly administrative-centric type of business, it clearly shows they need to make transformations to sustain the higher level of profitability they need, she says. Insurers clearly need to look for CIOs who can perform those tasks. Thats part of the profile for a CIO anywhere nowinsurance or pretty much any sector. The absolute skills a person needs are not just the technology skills. You need to be technically competent, but more and more were seeing companies want to hire folks in the CIO role who are able to muster resources, communicate with senior executives, plan, deal with strategy, understand what the people requirements are, and where the need for change is going to be. Thats more of a business profile.

No Argument Here

The days when promoting your top technologist into the position of CIO may not be over, but there is no guarantee that someone with only a technology background will take that seat at the executive table. Koppenheffer is a good example of that. Her first job in the technology sector of Penn National is her current position: CIO.

I came up through the business sideunderwriting and marketing, says Koppenheffer. My main exposure [to technology] had been as the major project sponsor for our commercial lines projects. She says Penn National had a number of good technical people, but the company felt there was no one available within IT to link business needs and strategies to the technical solutions available.

The kinds of skills Penn National was looking for in this particular situation had to do with basic managementproject management, expense management, people managementand the ability to link the business strategy with the technology, she says.

Koppenheffer claims she would never have taken the position if she had not felt so strongly about the technical skills of the IT staff. She believes her familiarity with the staff made it easier for them to accept her. There was less trepidation than if a business person had moved in from outside the company, she says.

Having a strong business background is an important factor for an aspiring CIO, Schafer says. Many technology people are moving over to the business side to broaden their background before returning to IT. The lure that keeps pulling them back is the technology itself. One thing about IT people is they typically like technology, she says. Some people come back to IT as a CIO, which is a happy blend for the companies that hired them. You dont have to be steeped in technology to be successful and make a company successful, but theres no question it does help. You clearly need an aptitude for whats important, whats coming down the road, and where you should be spending your time. She believes a good CIO understands more than the technology. Good CIOs are able to weigh the costs of new technology against whether it is the right time for a company to make a capital investment. Its more of an investment management approach, notes Schafer. Companies with really savvy CIOs are looking at IT as part of the asset base the company manages, and you need somebody who understands how that whole asset management thing works.

Improving Your Stock

Gilchrist offers several tips for CIOs looking to improve their position with their current company or looking to find a new home. Align with the business people, he says. You have to demonstrate you have an aptitude for understanding P&Ls or bottom-line orientation. Show visible improvement. Attract top talentyou are only as good as your people. Be prudentdemonstrate you are fiscally responsible.

Knowing where your company fits with major technology trends also is important. You better not put your head in the sand, says Gilchrist. The last thing you want is your CEO to come by and say, By the way, I think we better start outsourcing.

That fits in with Koppenheffers belief that the CIO position demands strategic thinking. Its not coding and programming, she says. Its setting out project priorities, vendor management, project management. Its helping to educate the executive team.

Schafer believes the business profile has replaced the technical side for many CIOs. More and more of what a CIO needs to do is rooted in understanding, articulating, and managing the financial aspect of whats going on in the IT department, she says

Gilchrist asserts executives moving up through the IT department should have a heavy dose of business applications rather than infrastructure knowledge. Its good to have a mix, but most people are getting jobs because of the business application side.

He adds most CIOs with whom he meets have degrees in engineering or business. One trend he is noticing is in advanced degrees. A fair amount have advanced degrees, he says. Usually an MBA. If you get into a more technical sector, you may see an advanced engineering degree.

Stepping Stone

CIOs may dream of having the big office in the executive suite, but Schafer says being a CIO has yet to become the key part of a rsum companies are looking for when they want to hire a CEO. Theres a natural bias if you have a lot of technology in your background, says Schafer. Is this guy anything more than a tech geek? CIOs have to focus on building business capabilities, being able to tout themselves, and have a record of success to demonstrate why they should be given the reins of something larger than IT. The talent is there, Gilchrist believes, but there are easier paths to the top job. Some of the CIOs out there are capable of being a president of a company, he says. I dont think its the logical path, but it could happen.

The Economy

There is little doubt the economy has hurt some salaries, particularly with bonuses and stock options, according to Gilchrist. But insurers better not think they are going to get a bargain if they go shopping for a new CIO. When we move CIOs to a new company, they are trying to improve themselves, he says. They are not going for a break-even situation.

To attract top talent you have to improve the situation for the new person. They are attracted by maybe the reporting structure, the challenge, the industry. Usually there are a number of factors to get somebody to pick up and move. Money is one of the factors, but not the only factor. The real good ones want the opportunity. There certainly is a financial component, but I dont think its the top one. People arent going to move just for money if the situation isnt right.

Whether it is a stepping stone or not, Koppenheffer believes being an insurance CIO is a wonderful challenge. Its a position that has a lot of pressure, accountability, and responsibility associated with it, she says. Whenever projects go wrong, systems have problems, or security issues pop up, its the CIO who has the ultimate responsibility. As a long-term employee who feels Penn National is doing some really good things, I want to be a part of that, and being recognized for the contribution I make is important.

Top Incentives for Key Performers

4 Training in excess of 15 days per year for development of hot skills

4 Work/life balance incentives:
On-site dry cleaning services
On-site gym
On-site day care
On-site postal services

4 Paid elder care

4 Financial assistance for personal needs (e.g., house, car)

4 Financial assistance for adoption

4 Additional paid time off for employee and family, including a long weekend or a week at a resort or spa

4 Transportation services provided at no charge (taxis, vans, etc.)

4 Zero-deductible health care

Source: META Group

Ranking of Insurance CIOs Total Compensation

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