Ryan Holderman: Letter to the STRS Executive Director and STRS Board Members

Ryan Holderman to STRS Executive Director and Board, September 30, 2008
Subject: Letter to the STRS Executive Director and STRS Board Members

Mike Nehf ; Mark Meuser ; Steven Puckett ; Dennis Leone ; Conni Ramser ; Mary Ann Quilter Cervantes ; Jeff Chapman ; Tai Hayden ; Craig Brooks ; Tim Myers

Ladies and Gentlemen:

I am writing to express my concern about the following action taken by the STRS Board this past month:

RETIREMENT BOARD APPROVES PBI PAYMENTS

In calculating this year's PBI* payments, two program criteria came into play. Under the PBI program, eligible Investment associates have as one of their goals that the STRS Ohio total fund return will exceed its benchmark by 40 net basis points. Since this was not achieved in fiscal year 2008, no Investment associate will earn a maximum payment. In addition, all PBI payments earned are reduced by 20% as the total fund had a negative absolute return. This reduction totals $1.5 million.

At its September 2008 meeting, the Retirement Board approved a PBI payment of $6 million for 87 Investment Department associates. This payment is $3.4 million less than the budgeted amount of $9.4 million and $2.2 million less than the amount paid for fiscal year 2007 performance.

In recent years, retirees have elected reform minded men such as Dr. Dennis Leone and Mr. John Lazares to the STRS Board and urged them to vote for changes in the way bonuses were awarded to both general and investment staff at STRS. Under their leadership, compromises were reached and changes were made. Bonuses for the general staff were eliminated and those for the investment staff were based on performance goals and benchmarks established by the STRS administration. As indicated above, these goals and benchmarks have not been met. Goals for the fiscal year 2008 were not met and yet a PBI payment of $6 million was approved by the STRS Board members. Dr. Leone, much to his credit, was the lone dissenting vote.

My late wife taught speech and English for seventeen years. She taught her pupils that one should “speak to your audience”. Your audience is made up of retired and active teachers whose careers offer no monetary bonuses, no compensation for hours worked beyond the hours school is in session, and no reward for falling short of expected performance. You have the responsibility to explain to this audience, in terms that those who do not operate in the world of investment-speak will understand, why bonuses were paid when goals and benchmarks were not met and “STRS Ohio's total fund return was -5.44% for fiscal year 2008 and the return thus far in fiscal year 2009 (July 1-Aug. 31) is -1.2%.”

The economic news of the past week does not bode well for STRS investments. It certainly will negatively impact retirees whose fixed incomes are already failing to keep up with increasing prices and tax burdens. Belt-tightening has given way to wasp-waisted corseting! The awarding of bonuses in this atmosphere appears to many retirees as being imprudent, insensitive and indefensible.

Sincerely,
Ryan L. Holderman
[*Performance Based Incentive -- BONUS to you and me. KBB]