Risk Manager Salaries Rise, But So Do Employer Demands

"Our goal is to allow risk managers to compare apples to apples," Mr. Perry said in an exclusive interview with National Underwriter. "You can't lump the risk managers in New York City with the ones in Rhode Island. You can't lump the person at a computer giant with one at a tiny non-profit. Lumping skews the averages and undermines any attempt to benchmark yourself against others in your particular position. To know where you stand, you need to stand next to people who are in comparable positions, places and industries."

In any case, regardless of the size of a company in terms of sales volume, risk management compensation rose across-the-board since 2000 despite a shaky economy, thus demonstrating the worth of a good risk manager in a hardening insurance market, Mr. Perry observed.

Average salary increases ranged from the 7.8 percent hike since 2000 to $81,423 recorded by those at companies with less than $200 million in sales volume, to the 16.6 percent gain to $173,227 for those at firms with between $4 billion and $7 billion in volume.

Bigger is definitely better when it comes to risk management compensation, as the average salary topped out at $234,011 for those at firms doing more than $15 billion in business–a 16.3 percent increase over 2000.

"The risk managers who are employed today are doing better than they've ever done financially. Many risk managers out there are making a lot of money," Mr. Perry said.

Risk managers also saw significant gains in compensation levels outside of base salary. In terms of bonuses, for example, risk managers in seven of the eight sales volume categories recorded gains. The biggest percentage rise came in the $4 billion to $7 billion bracketthe same group which recorded the highest percentage salary raise. This category saw the average bonus level soar 30.5 percent to nearly $20,000.

As was the case with base salary, the average bonus level rose with each jump in sales volume. Those at firms with between $7 billion and $15 billion in volume saw average bonuses rise 21 percent to a little over $25,000, while risk managers at firms doing more than $15 billion in volume enjoyed a nearly 20 percent bump in their average bonus to almost $32,000.

The rising bonus levels are particularly important, according to Mr. Perry, because risk managers had been depending more heavily on stock options as part of their incentive compensation packages in the late 1990s, which often did not pan out as planned because of troubles on Wall Street. Even at the smallest firms–those with less than $200 million in volume–nearly half had stock options. That percentage rose steadily with company size–up to 98 percent of those at firms with sales volume over $15 billion.

"Because the stock market is so down right now, the allure of getting stock options has worn off fast," according to Mr. Perry. "It's upsetting the retirement plans of risk managers to have options on 10,000 shares of their company's stock at a $30 strike price that is now on the market for $3 a share. Options are not the value-added benefit they were during the go-go '90s."

As a result, he said, more risk managers are looking to be rewarded with cash on the barreloften in the form of bonuses. "In a lot of firms, bonuses have picked up the slack in incentive compensation that options were once designed to do," he said, noting that one of his clients–a risk manager for a major corporation–reported that his bonus alone topped $300,000 last year.

Risk managers enjoy a number of other perks as well. Almost all have pensions, and a number even drive company cars–from 12 percent in the smallest sales volume category to 58 percent in the largest.

Unfortunately, Mr. Perry said, the fact that risk management compensation is showing healthy gains in a bad economy does not mean risk managers are riding on Easy Street, or are necessarily secure in their jobs.

Their job function is more important than ever, given the difficulty in getting sufficient insurance coverage at an affordable price in this rapidly hardening market, he noted. However, the demands on risk managers, as well as their employer's expectations in terms of risk management education, capabilities and skills have also never been higher, leaving many undereducated risk managers vulnerable, he hastened to add.

"Risk managers are facing tougher and tougher renewals these days, and if all they know how to do is buy insurance, they are not offering an awful lot of value to their companies," he said. Indeed, one-dimensional risk managers could have a very hard time holding onto their jobs and in finding new ones, he warned.

He added that the survivors in the hard insurance market will be "those who bring more value-added to the tablethe ones who prove to their companies they have a true worth in hard times." (For more on exactly what "value-added" means in risk management terms, see the accompanying story, "Risk Managers Must Hit The Books To Grow.")

Many risk managers have risen to the occasion, according to Mr. Perry. "The worst of times brought out the best in the truly talented and well-educated risk managers," he said. Conversely, some risk managers who were not state-of-the-artthose who were mainly insurance managershave lost their jobs or may be in jeopardy of losing them if they don't get up to speed in a hurry, he added.

"The day of the insurance buyer is over," he said, emphasizing again that risk managers must provide "value-added" for their employers or risk being dismissed as irrelevant.

"I get a lot of risk managers coming in with resumes in which they prominently report that they saved $200,000 on their casualty renewal or cut their property premiums by $100,000, but the time frame is the soft market," when everybody's rates were going down, he noted.

Mr. Perry cautioned that taking too much credit for saving money in a soft insurance market could "backfire" because "your employer or prospective employer could turn around and blame you for letting premiums soar and coverage disappear in the hard market, even though you had no control over that. You can't have it both ways."

He said it would be more effective for risk managers to demonstrate how they cut the true cost of risk, whether via loss control and safety efforts, or alternative risk financing.

(More information from this year's survey and the state of the risk management job market appears in sidebar articles running with this cover story. Additional survey material will also appear in upcoming "Corporate Insurance Buyers Report" editions of NU.)

Reproduced from National Underwriter Edition, April 7, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.