Rationale for bonus checks?

Dennis Leone to John Bos, October 17, 2008
Subject: RE: Thank You for your service to STRS

Thank you John for the information below on Wall Street investors. I will use your Wall Street illustration at the STRS Board meeting next month, but I am sure it will fall on deaf ears. The mentality is simply this…….if the market declines, for example, 10.3%, but the STRS investment staff’s portfolio declines by “only” 10.1%, then they deserve a nice bonus check because they beat the market. Can you imagine a teacher arguing that she deserves a merit increase after the student test scores in her class declined by a huge amount, because her decline was a little bit less than other classes in her school. Our lawmakers would laugh at this notion. STRS argues that the investment staff – even though they receive handsome base salaries and nice benefits no matter what happens with their portfolios -- should not be “penalized” (meaning no bonus checks) because of external factors beyond their control that drive the stock market down. This is like OEA/OFT arguing that teachers shouldn’t be “penalized” because external environmental factors adversely affect their student test scores. In fact, right or wrong, teachers may eventually lose their jobs if their test scores are continually low, irrespective of external environmental factors.

Dennis Leone

From John Bos
Subject: Thank You for your service to STRS

Dennis,

Just a brief note to thank you for always being watchful of the STRS business and the issues that will directly affect our future lifestyle.

There is another issue with the bonus that has never been reviewed. Most investment personnel on Wall Street do receive a bonus. Unlike STRS, their bonus is paid in stock of their employer -- not cash. They are also strongly encouraged (monitored) to not cash this bonus, but rather to "live and die" with their employer. Therefore all of their decisions on investment have a DIRECT LONG TERM relationship with their decisions. STRS employees are given cash and frankly have no concerns about their investment recommendations.

Bloomberg (satellite radio when I am doing dealer trades to pay for our medical expenses) said yesterday that these "investment gurus" are all over the place looking for work. They formerly would set up small hedge funds if they were not employed. There is NO INTEREST in these hedge funds and they do not have the capital to become self employed. They will move anywhere and the salary is not the issue. The reporter said that outside of investments, they were probably better suited to being a Walmart greeter. I can not find this report in print.

I also still have concerns why STRS associates have United Health instead of the Medical Mutual, Express Scripts coverage. Old Joe Endry (former board member) told me once that they live in Columbus and expect the Cadillac! Dennis, if our plan was the best deal, why not require the associates to utilize the same plan?

Thanks again for your assistance. We are in the biggest crisis that the U.S. has faced since Pearl Harbor.

John Bos