The bonus situation explained.....

From Dennis Leone, May 1, 2009

Most of the confusion surrounds the fact that the board votes each spring to adopt a new bonus plan for the upcoming fiscal year (which begins each July 1), but then 6 months later the board votes to approve the cash bonus payments for the PREVIOUS fiscal year (which is 12 months after the work is done).

This means: The board voted 8-1 to adopt the fiscal year 2009 bonus plan in March of 2008, then voted 8-1 in September of 2008 to approve the actual $6 million bonus payments for the previous fiscal year (fiscal year 2008, which ended 6-30-08). This is when the firestorm really started.

But instead of stopping the bonus plan for fiscal year 2009 at this time (September, 2008), everything went forward (with only me complaining). A Columbus Dispatch article in December of 2008 said I was the ONLY board member who was pushing to have the bonuses suspended.

Then in January of 2009, the board voted 6-3-1 to approve my motion to suspend the fiscal year 2009 bonus plan effective 2-1-09. This meant two things:
...(1) No one would get bonuses for their work in the final 5 months of FY 2009; and
...(2) The board would at some point have to vote yes or no on the cash bonus payments for the first 7 months of FY 2009 (which will be $3.3 million).

The board has itself in a real pickle now. If the board votes no, the door will be open for staff to sue and argue that they have already done the work for the first 7/12 of the fiscal year.

If the board votes yes on the 7/12 cash payments, board members will look stupid because they chose NOT to stop the bonus plan last September when they could have.

STRS Board policy permits the board to modify or terminate the bonus plan at any time, and all investment staff members received a letter early last summer that explains this. The comments by board members Tim Myers and Mary Ann Cervantes that appeared in the Columbus Dispatch after the board voted 6-3-1 to suspend the bonuses effective 2-1-09 were dead wrong. Both voted no on the suspension and were quoted as saying that board was “breaking a promise” by suspending the bonuses. No promise was broken. It was dishonest to make such a statement, and they both know it.

Between the years of 1995 and 2004, approximately 350 non-investment staff members at STRS (in addition to approximately 100 investment staff members) also got big bonus checks every year. This was a major component of my 2003 report. The board finally voted to end bonuses permanently for non-investment staff in 2004. Another elimination I pushed for, which was adopted in 2005, was the STRS practice of basing bonuses paid to investment staff, in part, on SUBJECTIVE factors. It’s gone now. How stupid was that past practice? Very Wall Street.

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"The PBI program may be interpreted, amended, rescinded and/or terminated at anytime by the Board."
~ STRS Board Policy Manual, page 33