Although risk managers in 2007 enjoyed the biggest average salary boost in the past three years, they need to brace themselves for the inevitable fallout from a struggling economy and should not depend on the softening commercial insurance market to establish their reputations and preserve their departments, the head of the profession's top placement service warns.

Indeed, although the soft market might provide a welcome, though temporary cushion against the impact of an economy increasingly in distress, over the long run risk managers must prove their worth beyond the benefit of temporarily falling insurance premiums, according to Bill Perry, president of New York-based Logic Associates.

“Risk managers cannot afford to become complacent,” he told National Underwriter. “This is no time for them to rest on their laurels. With the economy in a rut, everyone's job is on the line and everyone's department is on the spot, including the risk manager's.”

For the moment, however, risk managers are basking in the glow of a big boost in their pay scale last year. Logic's “2007 Risk Management Compensation Survey” revealed an average salary of $187,215 for the 1,317 risk managers filling out the questionnaire–a 30 percent response rate.

That's a steep 6.6 percent raise in the average salary over 2006–beating the prior year's gain of 4.8 percent, and more than double the 3.2 percent hike for 2005.

Bonuses for all risk managers surveyed averaged $19,688 in 2007–up 5.7 percent, down slightly from the 6.7 percent bonus boost the previous year. However, when combining salary and bonus, the average risk manager's total cash compensation last year topped the $200,000 mark for the first time, up 6.5 percent to $206,902.

The Logic Associates report was co-sponsored exclusively by National Underwriter, and for the sixth-consecutive year was based on a survey of NU's risk manager subscribers.

For the first time, risk managers at one of the company-size survey categories–the biggest, with those at firms generating sales of over $15 billion–topped the $300,000 salary plateau, with the 95 respondents at such organizations averaging $311,803 in salary, which was 7.3 percent over the prior year. Adding in an average bonus of $44,917–up 6.9 percent–the total cash compensation for risk managers at the biggest companies averaged $356,720, a gain of 7.2 percent.

The next highest-paid segment of risk managers–those at firms with between $7 billion and $15 billion in sales–reported an average salary of $262,744 (up 5.7 percent) and an average bonus of $35,316 (up 5.5 percent) for a total cash compensation just short of $300,000, at $298,060.

The gap between average total pay at the two biggest company-size categories was nearly $60,000–a 20 percent difference–showing that size and sophistication of the employer does indeed matter in risk management compensation.

Those at firms with between $4 billion and $7 billion in sales averaged total cash compensation of $251,147–a gain of 7.6 percent, but still more than $100,000 below those at the biggest firms.

The most generous raises on average went to risk managers at middle-market companies–those with between $2 billion and $4 billion in sales, with total cash compensation soaring 8.4 percent, pushing them over the $200,000 mark for the first time at $203,191.

However, even those at the smallest companies–those with annual sales below $200 million–enjoyed a hefty 6 percent raise, but off a much smaller base, bringing their total cash compensation to $110,764.

The fact that compensation rose so steeply last year “didn't surprise me at all,” said Mr. Perry. “The economy did really well for a good portion of the year–at least into the fall, when the cracks in the mortgage and broader financial system started to appear and everything began heading south. So most risk managers negotiating their raises in the first half, at least, did very well for themselves.”

But while the rising tide might have lifted all salaries, Mr. Perry emphasized that risk managers deserve credit for earning their raises by taking a higher profile and expanding their skills, knowledge base and responsibilities to meet new demands on their departments.

“Corporate America has definitely realized there is a key place for risk managers on their team,” he said. “More and more are waking up to that reality, and it's being reflected in the higher salaries and bonuses being paid to risk managers.”

That said, risk managers must guard against complacency, as every department will have to justify their value in a worsening economy, he warned.

“Certain industries have a legitimate case to make for budget cutbacks and layoffs. Real estate firms, construction companies, mortgage brokerages, banks and Wall Street players who got caught in the subprime vortex will have to lay people off to stay in business,” he said.

However, he added, “at times like these, which seem to come along every five-to-seven years, the rest of Corporate America jumps on the bandwagon, even if they are still doing reasonably well, like with pharmaceuticals, energy or other profitable firms. They seize the opportunity to reevaluate staff and get rid of any dead wood or otherwise nonproductive personnel.”

While risk managers might see their budgets challenged more stringently or have a harder time launching new initiatives in an economic downcycle, that doesn't mean they're in danger of losing their jobs, Mr. Perry added.

“A handful of smaller-tier firms might go back to letting the broker do their insurance buying–those where the risk manager reports to Human Resources or the general counsel,” he said, “but I don't see that happening yet, especially in a soft market.”

In fact, he noted, “I placed more clients at smaller firms that were adding on the risk management function the last few years. And you won't hear this kind of talk at companies where the risk manager reports to the CFO or the treasurer, who understand the job and value of the function.”

With the general economy tanking in many sectors, senior management will likely demand budget cuts from all departments, including risk management, according to Mr. Perry, who noted that “if there was ever a perfect time for a soft insurance market, this is it.”

A steep cut in premiums for major lines of property-casualty coverage could satisfy the corporatewide demand for expense reductions, as well as discourage any thoughts of staff cuts for the risk management department, he suggested.

However, Mr. Perry emphasized that for risk managers to depend on the softening commercial insurance market to bail them out long-term is not without its hazards.

“Risk managers have to resist the temptation to take too much credit for savings in a soft market, because sooner or later, when the market turns hard again, they'll have to accept the blame. They can't have it both ways,” he said.

“Unless the risk manager did something beyond merely accepting the lowest insurance bid, whether that be some effort they initiated in loss control, back-to-work programs, or in the alternative markets that actually lowered the cost of risk, any benefit they derive from the soft market will be fleeting, and they'll have a harder time justifying their value later on when premiums inevitably rise once again,” according to Mr. Perry.

“The soft market will give you a nice cushion,” he concluded. “It might even keep the corporate spotlight off of you and your department for awhile, but over the long haul you must constantly quantify your worth in ways you can directly control.”

To secure their jobs and set the stage for further raises, promotions or career moves to bigger firms in more dynamic industries, Mr. Perry offered risk managers a host of “survival tips.” He emphasized the importance of continuing education, being proactive, and effectively documenting and communicating what the risk management department has accomplished, among other suggestions. (See related story on page 17.)

“Your job,” he said, “should be the promotion of risk management as an integral part of business development. Don't just be the one who always delivers bad news about workplace injuries or property damage or lawsuits. Become the person who also makes good things happen for the company, and make sure top management is aware of what you do to improve the bottom line.”

Urging risk managers to “think of your role more as that of an internal entrepreneur,” he suggested that today's insurance buyers will make way for more versatile players who “are creators rather than just defenders or fixers.”

“Risk managers will be increasingly proactive, rather than reactive,” he predicted. “They will be in charge of their own destiny regardless of whether the insurance market is hard or soft. They will be masters at suggesting and implementing ways to leverage risk to their organization's advantage.”

He added that “the buyer mentality must give way a bit to the seller's mentality,” noting that some risk managers remain overly cautious, conservative and self-conscious about taking center stage, while their brokers are typically bolder and more self-confident about suggesting alternative risk-transfer and loss control solutions.

“You'll need to adopt more of the seller's skills to advance in risk management,” he said. “You must be able to communicate what you want to do and how. You need to be able to sell your approach to your senior management and board. You must create excitement about your initiatives, and be more of a leader so your organization will go along with your innovative approaches.”

The bottom line, Mr. Perry concluded, is that “convincing people you know what you're doing is what it's all about.”

Special Reports /

Risk Managers Are Big-Money Players As Pay Rises Despite Falling Economy

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