HB 177 & she forgot to mention to Kevin that the STRS bonus decision can be changed in a heartbeat; also, Dennis Leone and the dreaded 'V/A' word

From John Curry, June 8, 2009

And....Marla forgot to mention the board "tie vote" taken earlier re: quashing the bonuses until public pressure was placed upon the entire STRS board to abolish the bonuses, didn't she? Bonuses can be reinstituted in less than 10 minutes at the next board meeting, can't they? They couldn't if the Ohio Revised Code prohibited same during "downturn" times.

John

From Dennis Leone, June 8, 2009
Subject: Re: Fwd: House Bill 177

There it is again, that dreaded term "value added" -- which is, in the eyes of STRS staff and the STRS board majority, the justification for bonus checks even when we lose money. Never mind, of course, that the average BASE compensation for all investment staff members this year is $156,000 (which amply pays for the "value added"), and never mind that the staff receive spectacular benefits that people never see in the private sector. But of course, to quote one STRS board member, if we don't give these bonuses even when we lose money, we won't be able to attract the "best and the brightest" and perhaps the staff will not have the incentive/motivation to perform at their highest level. Unbelievable. Please share THIS with Rep. Bacon, along with the fact that the STRS Board, in a heartbeat, can change the suspension policy at any time for any reason.

Dennis Leone
STRS Retiree Board Member

Marla Bump to Rep. Kevin Bacon, June 8, 2009
Subject: House Bill 177

Kevin,

The message you sent to Kathie Bracy on Friday regarding your support of HB 177 has made its way to me. Subsequently, I thought I would take a minute to share some additional information with you. Below is an excerpt from the report that is published following the monthly board meeting. It details the action the board has taken with respect to the performance-based incentive program for fiscal 2010 and an additional policy for ensuing years - both of which require a positive return on investments as a prerequisite for the pbi's to be paid. Additionally, the board for FY 2010 is requiring assets reach $65 billion for the full pbi potential, anything short of that threshold will result in a reduction factor being assessed, and, again, it requires a positive return.

The issue of pbi payments aside, I would ask that you bear in mind when it comes to the operation of the system that STRS has a representative board comprised of active members, retirees and appointees from the governor, the treasurer and one member who is a joint appointee of the Speaker Budish and President Harris and those appointees have been on the board since 2004. As you know, this system has been in operation since 1920 and in that time, the legislature has entrusted the board to manage the operations of it. Having said that, we are concerned about the precedent that the passage of HB
177 would establish.

Finally, I would like to share some information concerning the costs of managing the system assets. I know there are some that believe using outside money managers should be the direction the board takes, but consider this: generally only 1 out of 5 years are returns negative, and investment management by STRS Ohio internal staff saves Ohio taxpayers more than $100 million a year compared to investment management by Wall Street firms. Furthermore, the added value by STRS Ohio internal staff this past year alone was $215 million (FY 2008) compared to the $6 million paid in incentives - the total paid for FY 2008 pbi's.

Kevin, thanks for your time. I would appreciate an opportunity to sit down and talk with you about these issues if you think it would be helpful.

Thanks and take care,

Marla

PS - tell Melissa I said hello.

MAY BOARD NEWS

BOARD ADOPTS PBI PROGRAM FOR 2010 FISCAL YEAR During its May 2009 meeting, the State Teachers Retirement Board adopted a Performance-Based Incentive (PBI) Program for 2010 for eligible Investment Department associates that includes a provision for no incentives being awarded if the STRS Ohio total investment fund has a negative absolute return for the fiscal year (July 1, 2009-June 30, 2010).

The vote followed months of discussion and consideration regarding incentive compensation. Other key components of the newly adopted incentive program include provisions adopted by the board at previous meetings:

- If the STRS Ohio total fund earns a positive absolute return but the total market value of investment assets is less than $65 billion by the end of the fiscal year (June 30, 2010), then incentive awards will be reduced by
3% for every $1 billion (and fraction thereof) of the shortfall from $65 billion. For example, if assets on June 30, 2010, are $55 billion, earned PBIs will be reduced by 30%. As of April 30, 2009, total fund assets were approximately $51 billion.

- The new PBI program will enhance earned PBIs when the absolute and relative performances are high.

The board also adopted a motion that said in future years, when the total investment fund returns are negative, no Investment Department staff will receive PBIs. This is effective with fiscal year 2011 going forward.