Dennis Leone: STRS Update on January 16, 2009 Board meeting

STRS Update
By Dennis Leone
STRS Retiree Board Member

I am pleased to report that at the STRS Board meeting on January 16, 2009, the Board voted 6-3-1 to suspend the bonus plan involving STRS investment staff members effective February 1, 2009. Beginning July 1, 2009, a new bonus plan will go into effect that will restrict the level of bonuses in future years when STRS loses money in the stock market. Should STRS total assets climb back up to at least $65 billion before July 1 (we currently stand at $53.8 billion), then the new plan will have a February 1 retroactive date. The Board decision also removed eight positions (like the STRS real estate attorney) from the eligibility list for bonuses. The new base salaries for the eight positions will require formal Board action.

The vote: I made the suspension motion. It was seconded by Columbus teacher Tai Hayden. Joining Hayden and me with yes votes were Regina Burch (the Governor’s appointee), Craig Brooks (the State Treasurer’s appointee, and soon to become the appointee for the Speaker of the House and the Senate President), Steve Puckett (the State Superintendent’s appointee) and Jeff Chapman (a retiree member). Voting no were teacher members Tim Myers, Mary Ann Cervantes, and Mark Meuser. Abstaining was teacher member Conni Ramser.

Background: Last month, I recommended that the bonus plan be suspended beginning January 1 due to our significant stock market losses. There was insufficient Board support at that time for this to happen. A number of different options were considered by the Board. This past Wednesday, during a Salary/Benefits Committee meeting, Board member Burch suggested a suspension effective February 1. Board member Brooks drafted the technical language for reductions to go into effect for future bonuses after July 1. Had Ms. Burch not stepped up with her suggestion, had Mr. Brooks not prepared the needed technical language, and had Ms. Hayden not been willing to second a motion, I do not believe the change would have occurred. It deserves noting that at the Board meeting, STRS Executive Director Mike Nehf said he and the staff would support the new plan.

I presented two other motions to the Board that were tabled after Executive Director Nehf said he would cause them to happen administratively. They were:

1. The development of a mechanism to enable the STRS Board and staff to deviate from its passive stock policy when certain stocks go significantly south due to abnormal external circumstances, like fraud. Current Board practice, for example, triggered the automatic purchasing of 92,500 shares of Fannie Mae stock just before the company collapsed and was taken over by the federal government. STRS lost millions. I was of the opinion that this never should have happened.

2. Communicating the STRS Board’s objection to companies that used federal bailout dollars on things like bonus checks, expensive retreats, hunting trips, multimillion dollar CEO contracts, and multimillion dollar severance payouts. The purpose of my motion was as follows: STRS has spent millions purchasing stock in certain companies that have lost public confidence and stockholder confidence due to their fiscal mismanagement. Simply put, such a decline in confidence – and the decision-making that led to it – adversely affects the value of stock STRS has purchased……which in turn affects all of us.

I wish to thank STRS members – both retirees and active members – who have expressed their feelings on the bonus check matter over the past few months. The Board received a very large number of communications. It is very important that so many people took the time to write. I believe the decision that was made was in the best interests of STRS.

Dennis Leone