Will Ohio STRS investment managers "do more adjusting than most?"

This is the point I have been trying to make with Mr. Nehf and others at STRS. Of course the board brings consultants from the same industry to tell us all is fine with the bonuses.
Dave Parshall

Questionable bonuses

The whole financial industry seemingly has been overinflated with its own self-worth

Pennlive.com, December 23, 2008

"All of us have little choice but to adjust our expectations to the economic realities of the moment, and excessively paid investment managers may have to do more adjusting than most."

Paying bonuses to government employees was part of the "reinventing government" movement that sought to create more productive and efficient government through business-like incentives.

But the practice has clearly gone out of favor.

The latest area where bonuses have come into disrepute is among investment managers in one of the state's two large public employee pension funds. The Public School Employees' Retirement System will pay 21 of its staff bonuses ranging from $9,720 to $106,223 for the 2007-08 fiscal year, when the fund lost $1.8 billion. But the fund is ending bonuses, effective at the end of this year.

No one is expected to be eligible for a bonus at the State Employees Retirement System, according to spokesman Robert Gentzel.

The payment of bonuses is common practice for private-sector investment managers. Based on performance, they often are very generous, on top of salaries that already are at the high end of the wage spectrum. As we've seen, the finance industry can be incredibly lucrative, as well as incredibly stupid, often at the same time, enough so to precipitate the financial collapse that has put the entire economy on the brink of economic disaster.

The penalties for losing money clearly don't come close to balancing the rewards for making money.

Gov. Ed Rendell was on the money in writing to PSERS last month, stating: "Given the fund's recent performance and the serious financial challenges now facing the commonwealth as a whole, the payment of large bonuses to PSERS employees would be inappropriate and indefensible."

It also likely is unnecessary. The recent blow up and downsizing of Wall Street powerhouses hasn't exactly made investment managers a dime a dozen, but a lot of them are looking for gainful employment. And you could make the case that the whole financial industry was inflated with its own self-worth at the expense of the rest of the economy. All of us have little choice but to adjust our expectations to the economic realities of the moment, and excessively paid investment managers may have to do more adjusting than most.