Barb Garwood and Molly Janczyk re: STRS bonus packages

Barb Garwood to Molly Janczyk, November 17, 2008
Subject: STRS bonus packages

Hi Molly, I haven't chatted with you in some time, but I do read the emails you send. Thanks for keeping me in the loop and for your continued hard work with CORE on behalf of all retirees.

I attended my last meeting as a Trustee with ORTA on Thursday, 11/13, in Columbus. STRS Exec. Dir. Mike Nehf gave a 15 minute talk and then answered questions. I was quite favorably impressed by his style, attitude and presentation. His comments were clear and concise. He listed his top goals for STRS, which were standard and appropriate. I won't reiterate them here, because I'm sure he has talked with CORE as well. He did state that he has instituted the following policies: 1) travel is limited insofar as possible, 2) there will be no new hires at STRS, 3) no mid-year increases will be implemented, and 4) only necessary purchases will be made. Of note is that he stated that he will consider a cap on bonuses.

During his presentation, Mr. Nehf spent several minutes on the "performance based incentives". He explained that associates' pay is based on salary plus variables, which, of course, is the basis of the bonus when benchmark is reached. He noted that the bonus is usually 1% of the amount of amount for bonus. Thus, if the associate earns 10% over, then 1% bonus is given. The 10% is $6 billion, so 1% is $6 million. That amount represents 1/100 of the total value of the fund. Thus, it is a rather small amount when considered totally.

After his talk, I raised the question of bonuses noting that his description of the bonus amount as small is a helpful way to perceive the value of bonuses; however, I added that the perception brought small solace to the retiree who had to go back to work to afford health care. I added that the bonus program is always explained as necessary in order to hire and retrain high quality people, but I observed that such a theory was never tested. I wondered if all associates would quit en masse if bonuses were denied and, if so, where would they go. I further noted that paying bonuses (large or small) in the atmosphere of Wall Street greed and scandal just leaves a negative connotation on all bonus packages. I also wondered if there is a way that bonuses could be earned using bogus data somewhat like Enron executives did with phony bookkeeping.

Mr. Nehf did not respond to each point I made but said he understood. He also observed that this bonus program has been in place for years with no objection from retirees until now. I corrected that perception by noting that there were objection to bonus payments when the flap was loud over outlandish expenditures. He said that objections were only made with regard to all staff getting bonuses rather than associates getting bonuses for investment successes. He was probably right about that point.

At any rate, I think STRS is taking a good look at the bonus package. I also agree that STRS cannot deny the bonus if it is part of the current contract with the associates. I pointed out that contracts with employees (unions) are what is destroying the big 3 auto companies from being competitive. I suggested that STRS not write the bonus into the contract.

Your work with CORE in quietly but firmly keeping the concept of bonus packages in the forefront is appropriate, and I am convinced that Mr. Nehf and STRS are paying attention.

Have a nice Thanksgiving.

Barb Garwood

From Molly Janczyk, November 17, 2008
Subject: Re: STRS bonus packages

Thank you, Barb. You raise excellent points. Mr. Nehf is mistaken, though perhaps, innocently, regarding bonuses. Before he was around, bonuses WERE a large part of dissent in 2003 and after. Had he thoroughly read and researched the info I passed to him on before and after changes, he would know this. At that time, STRS was awarding up to 125% of salary bonuses. Changes were made, though now, it seems some are earning huge bonuses again. What he may be referring to is JUST before he came, membership was approving of the huge gains investment staff were making on our behalf and felt bonuses were in order for their getting us back to solid ground.

The point, now, is mainly sensitivity to STRS membership in times of crisis. When one is having difficulty buying groceries, paying for meds and medical treatments and or cutting back in these areas, STRS must recognize how those huge bonuses rubs salt in wounds. It is unseemly and reeks of entitlement for a public pension system to reward such high amounts in the faces of very needy retirees without seeking ways to extend a hand to them as well. For ex: Don't show AIG going to fancy spas and ask for understanding that this was a bonus for earlier work when its shareholders are losing great amounts of money.

Cutbacks in such awards, bonuses, merit raises: whatever title of the week is used, is timely and appropriate when corporate America is also heeding this call. Damon used to change the name thinking we'd be that stupid, I guess. City mayors putting freezes on raises, etc. When your shareholders suffer, those who work for them should be more compassionate and willing to endure some of the reductions.