Looks like we're getting some national attention...the "big boys" read this rag

Pension board to study bonuses
TradingMarkets.com
November 21, 2008
The Columbus Dispatch
By John Nash

The pension fund for retired Ohio teachers will take a closer look at the practice of handing six-figure bonus checks to some of its investment managers while the pension fund loses billions of dollars in value, the fund's board decided yesterday. The board of the State Teachers Retirement System was reacting to criticism from dozens of retired teachers that it continues to pay large bonuses even as pension investments are battered by the downturn on Wall Street.

The pension system paid about $6 million in merit bonuses to 89 investment officers this year, with 10 of the employees receiving bonuses of $200,000 or more. Two assistant directors of investments received bonuses of more than $250,000 in addition to their base salaries of $270,000.

State Teachers Retirement System officials defend the payments as the only way to attract and retain investment managers who help the pension add value during good times and minimize losses during recessions.

While some pension officials reiterated that argument yesterday during a board meeting packed with retired teachers, the board did agree to put the bonus program up for review. It assigned a committee of board members, headed by pension board vice chairman Mark Meuser, to study the program in the next few weeks.

Yesterday, Meuser advocated for the merit payouts and rejected suggestions that they should be awarded only when the pension fund grows.

"If you have incentives on a relative scale, then people are truly (motivated) to work," Meuser said. "By taking away our incentives, we are risking our bottom line. That, in my view, is not being a good fiduciary."

Some retired teachers saw it differently. They pointed out that the teachers pension fund -- which covers 449,000 current and retired teachers and beneficiaries -- has lost $30 billion in investment value in the past year as Wall Street has tanked. The trend endangers health care for retired teachers and may threaten pension payments, according to some retirees.

"No one from the executive director down to the custodian should be paid a performance-based incentive when our system is losing money -- period," said Lloyd Knudsen, a retired teacher from the Woodridge school district in Summit County.

Ryan Holderman, a retired teacher from Springboro community schools in Warren County, said news of the bonuses has "stirred feelings of betrayal and skepticism" among many retired teachers. He said the pension needs to rethink its practices during economic crises such as the current one.

In March, with board member Dennis Leone dissenting, the State Teachers Retirement System board approved a bonus plan for 2009 that could result in even higher payouts for investment officers, giving 13 of them total pay of $500,000 or more. That assumes that the market stabilizes and the investment officers meet their benchmarks.

Pension officials said yesterday that they'd study whether they could cut those previously approved bonuses without getting sued.

Leone had a spirited debate yesterday with a consultant for the pension system, Adam Barnett, who argued that taking away the merit pay would cause talented investment managers to flee for private-sector work.

"My son is a manager at Rite-Aid," Leone said. "One year he got a $2,000 bonus, and the next year, zero, because the company lost money."

Barnett, of the McLagan consulting firm based in Connecticut, said that even with the convulsions on Wall Street, some companies still are hiring investment managers. He said the State Teachers Retirement System of Ohio pays less than about three-quarters of private firms that employ investment managers.

"The consequence of (eliminating bonuses) is that you're basically saying to me, 'Adam, put your resume on Bloomberg,' " Barnett said, referring to the financial-information service.

jnash@dispatch.com

From John Curry