Monday, December 01, 2008

Tom Curtis and Steve Buser re: PBIs, Board policy, etc.

From Tom Curtis, December 1, 2008
Subject: 120108 Curtis, Re Rich DeColibus to STRS Board....Your job is to monitor and regulate!
Stephen Buser, a recent former board member, kindly responded to my email passing along Rich DeColibus' comments, along with some of my own.
Steve is a retired OSU professor in the College of Business and a STRS stakeholder.
Tom Curtis
From Steve Buser, December 1, 2008
Subject: RE: 120108 Curtis, Re Rich DeColibus to STRS Board....Your job is to monitor and regulate!
Dear Thomas and other fellow retired teachers,
As I said at the recent Board meeting, and at the risk of incurring the wrath of many, I continue to support the PBI program on the grounds that I firmly believe it is in the best interest of us as retirees.
It is the Board, not the staff, that sets the asset allocation policy of STRS. The economy then decides if the Board policy generally will do well or poorly in the following year. It is the job of the investment staff to add value as best they can to whatever conditions they are given by the Board policy and the economy. The STRS PBI system pays out money if, and only if, staff does well in its specific assignment. For example, if the STRS return is strong in a given year because the Board puts STRS in stocks and all stocks do well, there are not necessarily any bonuses. To earn bonuses, staff would have to add value beyond the policy return, and that relative contribution is measured by an external advisor to the Board.
As is correctly noted by Rich DeColibus below [here], for the year ending June 2008 the return for the Board policy was negative. Yet staff managed to add back over $200 million to the pot. That is $200 million that would not be available for retirement or health care if staff had not done, not just a good job, but an exceptional job. Moreover, while it might not seem like it is that hard to add back a handful of basis points above whatever percentage the Board policy return nets, it truly is very hard, especially in a down market. Many pension plans and other institutional investors around the country would be envious of the STRS record and would be eager to hire away our talent.
But please do not think I am taking up the cause for staff. When I first joined the Board and saw how much STRS was spending on our investment staff, I was the Board member who asked our advisor, Russell, if we could save money by eliminating all staff and simply outsourcing the work. That is where we came up with the figures noted below that show STRS actually manages to save a lot of money by using its own staff. So the way I look at, the PBI program may have cost us $6 million, but it generated over $200 million on top of the money STRS saved by using its own staff. I just wish STRS staff had managed to add back even more value, which would have resulted in even bigger bonuses.
I can appreciate how frustrating it is to see big bonuses being paid on salaries that are already huge in relation to teacher salaries. And in a year when returns in general are negative it is even more frustrating. Nevertheless, in my opinion the worst message the Board could send to staff is that because last year the market was down, and because the market since June 2008 has been even worse, we do not care if staff manages to earn back some of the money beyond what the market provides over the rest of the year. On the contrary, I hope that the STRS staff can add back even more money than it did last year. My fear is that they will not be able to do so, in which case there will not be any PBI money paid out.
I think of the PBI system as a kin to a commission. If they don't earn it for us, we don't pay it to them. Another analogy that is appropriate, in my opinion, is recognizing the contribution of a teacher who is assigned a class of students that are two years behind grade level at the beginning of the year. If the class closes the gap and is only one year behind grade at the end of the school year, did the teacher do well or poorly? Some might argue that no teacher ever deserves recognition if his or her class ends up behind grade level. But doesn't a teacher that helps close a significant gap really have an exceptional year just the same?
Here's hoping STRS staff can help us close the gap this year. Then, and only then, will STRS staff earn bonuses this year, or any year, under the PBI program.
Steve Buser

From Tom Curtis, December 1, 2008
Subject: 120108 Curtis, Re Rich DeColibus to STRS Board....Your job is to monitor and regulate!
Hello Educators,
What Rich DeColibus states [here] more then exemplifies my continued statement that besides Dr. Dennis Leone, who objected to the PBI payments, our elected board members have absolutely no business governing what policy takes place at the STRS.
Because not one of them has any education or background in the business and financial world. Who else on earth would allow these same people to manage billions of dollars? This is truly unbelievable to me!
Until educators (OEA/OFT sheep) wise up about who they are electing to make their pension decisions, expect the underperformance we have witnessed by those people many times over the past two decades and the billions of dollars lost because of such.
The undereducated board members we have experienced for nearly 2 decades, with few exceptions, have been given to us by the OEA/OFT. However, they seem to think they are doing a good job. HOGWASH! Please read [here].
Tom Curtis
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