Columbus Dispatch: 10 STRS investment officers pulling in bonuses of $200,000 or more

Pension funds pay big bonuses

Despite falling assets, investment managers still draw six-figure perks

Sunday, November 2, 2008
By James Nash
THE COLUMBUS DISPATCH

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The turmoil on Wall Street has sucked billions of dollars out of Ohio public-pension systems, but many of the pension employees who are paid to invest retirees' money still will reap tens of thousands of dollars in bonuses.

This year, 10 investment officers for the State Teachers Retirement System pulled in bonuses of $200,000 or more, and two crossed the half-million mark in combined salaries and bonuses.

Thirteen investment officers for the teachers' pension could reach $500,000 in total pay next year under a bonus plan approved by the pension board, although many will fall short unless the market recovers.

While a depressed market will pinch the performance bonuses somewhat, it doesn't necessarily spell the end of six-figure jackpots for pension officers who oversee declining portfolios. A pension officer whose assets lose value -- but less value than average for a comparable portfolio -- still qualifies for a bonus, in some cases reaching into tens of thousands of dollars.

In all, the State Teachers Retirement System paid nearly $6 million in bonuses to 89 investment officers this year, most of whom have base salaries of $100,000 or more.

The pension fund affects 449,000 people, including about 180,000 active teachers, 140,000 retirees and 120,000 beneficiaries. Some retired teachers are fuming about the bonuses at a time when their pensions are bleeding value.

"When retirees are struggling to pay for groceries, there's so much insensitivity to see millions and millions of dollars going to pay for bonuses," said Molly Janczyk, a retired Columbus school teacher. "No one faults them for bonuses, but it kind of rubs salt in the wounds to see these kinds of bonuses during the economic downturn."

The bonuses have touched off a brush fire of criticism among members of a group called Concerned Ohio Retired Educators, which formed in late 2003 in response to perceived extravagances at the teachers' pension system.

A Web log run by a member of the activist group, retired Columbus teacher Kathie Bracy, has been abuzz with comments on the bonuses.

"Retirees think it's only fair that (investment officers) pull in their belts the way we all have to pull in our belts," Bracy said.

The teachers fund's top earner, assistant director of investments Mary Ellen Grant, took home $529,200, including a bonus of $259,200.

That's nearly as much as her counterpart in California. Christopher Ailman, chief investment officer for the California State Teachers Retirement System, took home a bonus of $295,000 this year. Ailman oversees $147 billion in assets for the nation's largest teacher pension, compared to $63 billion for the Ohio system.

Although the California teachers' pension has a larger investment staff, only 15 officers qualify for performance bonuses, a spokeswoman for the system said.

Officials from the Ohio system defend the merit pay, saying the bonuses pay for themselves several times over in improved performance of the system's portfolio. They also note that while many investment officers clear $200,000 a year, that's still far less than they would be paid in the private sector.

"In order to attract and retain quality people at STRS Ohio, and you need to have the best and brightest to have the kind of investment performance you want, you have to have these kinds of incentives," said Michael J. Nehf, executive director of the pension system. "The money we pay in those bonuses is repaid many times in terms of our investment performance."

Nehf is paid $225,000 a year and does not qualify for a performance bonus, meaning that many of his subordinates earn more than he does.

The teachers' pension fund is by far the most generous public-retirement system in Ohio when it comes to merit pay.

The Ohio Public Employee Retirement System, which is slightly larger than the teachers' fund, paid about $1.3 million in performance bonuses this year. The largest was $125,742 and went to Robert G. Cowman, the system's chief investment officer. His bonus was less than those of 16 investment officers for the teachers' system.

Human-resources managers for the Ohio Public Employee Retirement System said the bonuses are an important part of recruiting and retaining employees, although they said there hasn't been an exodus to the pricier teachers' system.

Why the discrepancy?

Officials from the teachers system note that they manage about 80 percent of the pension's assets in-house, compared with about 62 percent for the Ohio Public Employees Retirement System. Even with employees pulling down six-figure bonuses, it's still cheaper to manage funds internally than to farm them out to Wall Street firms, experts said.

The Ohio pension systems that pay out the least in employee bonuses rely the most on Wall Street fund managers. The State Highway Patrol Retirement System paid no bonuses; its investment decisions are made by external managers.

Those external managers often get bonuses that dwarf those of public pension officials, although private-sector money managers also have to hustle to make sales, said Alan Johnson, a Wall Street pension compensation specialist.

He said that's the dilemma for systems like the State Teachers Retirement System of Ohio: pay what appear to be whopping bonuses to internal investment managers, or go outside the system where compensation is not public record.

"Ohio could invest with any of the largest management organizations and pay would not be an issue at all, because you wouldn't know what it was," Johnson said.

jnash@dispatch.com

Even with pension-fund employees pulling down the really big bonuses, it is still cheaper to manage funds internally than to farm them out to Wall Street firms, experts said.

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