Public Fund Incentives Draw Fire, Focus

Should public fund staff receive bonuses when the fund suffers a loss?

By PS | July 22, 2009
Page 1 of 5 View Full Article

Much like their Wall Street brethren, investment managers at some of the country's largest public pension funds receive incentive bonuses when fund performance exceeds established benchmarks.    When public funds experienced significant investment gains on assets, bonus payments flew under the radar.   Amidst the last year of fund losses, however, those bonus payments are drawing howls of criticism.     

In Missouri, Governor Jay Nixon called $300,000 in bonus payments to the 14-member staff of the Missouri State Employees' Retirement System (MOSERS) "unconscionable."     MOSERS' performance last year exceeded that of its peers, but the Missouri pension fund still lost close to $1.8 billion㬓.9% of its value.    To show its disapproval, the Missouri Senate Appropriations Committee cut the state's contribution to MOSERS by $300,000.    Chairman of the committee, Senator Gary Nodler (R), says bonus payments are inappropriate in years when there is no fund growth.  

There are sound reasons for paying bonuses in today's economic environment, even if a pension fund has lost money for the year, says Keith Brainard, the Research Director for the National Association of State Retirement Administrators in Georgetown, Texas.     "If a ship's captain encounters a hurricane at sea and navigates it successfully but with some damage to the vessel, does the company he works for praise him for saving the ship or blame him for the hurricane?" asks Gary Findlay, the Executive Director of MOSERS.