Rich DeColibus, a commentary: Giving out those bonuses cannot be rationally justified however much you twist the logic

From Rich DeColibus
October 28, 2008
Subject: Higher Math

Well, now, as someone much smarter than I already figured out, if you divide the $6,027,249 total Performance Bonus Incentives by the 87 investment counselors who received them, it comes out to $69,278.72 each. Not a bad little Christmas present. Buy a few ornaments with that. Of course, some got a bit less (I imagine those getting only like forty or fifty thousand are really pissed), and some got more - averages are so cruel like that. Gee, I remember when I got my government stimulus check, I thought I hit the jackpot. Little did I know, I just wasn't a member of the right government!

Now, according to the "STRS Ohio News" newsletter of October of this year, our fine investment community beat the market average (yes, crushed the infidels, like Ohio State playing the Oak Park Elementary football team), thus meriting those really meager bonuses. Well, yeah, we kinda lost $25 billion, but if you want to get picky you should step back and look at the big picture, which, admittedly, is hard to see hidden behind the mountains of worthless securities we now own. I guess I have a bad attitude; it's hard for me to bubble with enthusiasm over "...approximately $215 million above the composite benchmark return..." (to quote the newsletter) when, however you wish to slice and dice it, we still lost $25,000,000,000.

But, I'm sure it was all reasonable and figured out to the nth degree. For example, with a 0.35% rate of return better than the composite benchmark, the bonuses average $1,979.39 for every one-hundredth of a percent above the composite. Or, from another angle, if they do 1.0% better than the composite, their bonuses should be $197,939.30 each, and for a 5% better than the composite, it's close to a million. Granted, STRS has a cap, but I think the relevant issue is the RATE at which the bonuses are calculated, not the actual amount or the cap. Indeed, one suspects the amounts were decided first, and then retroactively justified with figures close to a Saturday Night Live script. Not many of my former students would expect a million dollar bonus for improving his/her test score from 82% to 87%.

Wait, it even gets better. If you divide a $25 billion loss by 87 investment counselors, you get an average loss of $287,356,322 by each counselor. But, you see, you fail to understand how significant that 0.35% better-than-the-benchmark really is. You're just cheap and miserly. While it is true the $215 million better-than-the-benchmark amount is less than the average amount each and every investment counselor lost (times 87), you should, to be fair, look to see how much the average loss would be if, in fact, the investment community had a 0.0% better-than-the-benchmark rate. Yessirree, now we'll get down to brass tacks. If the STRS investments had hit the market average (instead of being a humungous 0.35% better), the average loss for each investment counselor would have been a huge $288,362,068, instead of a tiny $287,356,322. Any fool can see $288,362,068 is a very different number than $287,356,322. Why, it's whole bunches different. For example, there's a seven in $287,356,322, but not in $288,362,068. That certainly justifies the bonuses! It was obvious once you knew what to look for!

More seriously, I'm not blaming the investment counselors for the $25 billion loss; they, along with most of the country, were swept up in an economic tsunami. The issue of their employers spreading money around like drunken sailors in a Singapore house of ill-repute, however, is still very much alive. In short, losing $25 billion, eh, easy come, easy go. On the other hand, giving bonuses to those responsible cannot be rationally justified however much you twist the logic.

Rich DeColibus

Now retired, Rich was president of the Cleveland Teachers Union for sixteen years.